Morningstar: The Benefits and Pitfalls of Working Past 65

Friday, 05 Oct 2012 07:58 AM

By John Morgan

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Americans are living longer during tougher economic times, meaning that working past 65 for many might be a necessity — not a choice. But there are financial consequences to consider with that decision.

Morningstar analyzed the effects of maintaining a job in one’s golden years, and found both benefits and potential snags.

If one waits until full retirement age (currently 66, rising to 67 for younger baby boomers) to file for Social Security benefits, they can then earn as much income as they want without having those benefits reduced by a cent.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

But even after full retirement age, the law provides that Social Security benefits become taxable once one’s provisional income exceeds a certain amount. That means that continuing to work is likely to mean an increase in taxes owed on benefits. For instance, for those with retirement income above the highest thresholds — $34,000 for singles and $44,000 for couples — up to 85 percent of Social Security benefits become taxable.

Morningstar reported a primary benefit of continuing to work in retirement is being able to continue retirement plan contributions into 401(k)s and Roth IRAs in many cases.

People who work past the age of 65 will also have decisions to make on healthcare coverage, especially if they are covered by a healthcare plan at work while also being eligible for Medicare. In most cases, Morningstar recommended signing up for Medicare Part A even if the company plan is still in effect.

Morningstar cautioned it is not permissible to contribute to a health savings account after signing up for Medicare benefits. It is also wise to check current requirements for Medicare Part B and Medicare Part D before accepting them while still working.

The New York Times reported a record 7.2 million Americans age 65 and older are working – double the number from 15 years ago – out of choice or necessity.

“Maybe people have recovered from the stock market plunge,” Sara Rix, a senior policy adviser with the AARP Public Policy Institute, told The Times. “But many people are still anxious about what may happen to the market, and that has caused many to delay retirement.”

Meanwhile, CNBC cited a survey in which 60 percent of workers estimated their total savings (excluding their homes and defined benefits) was less than $25,000.

“Retirement today is not that of a generation ago. Gone is the day of a company pension, company-paid healthcare and secure Social Security,” said Ted Sarenski, chief executive of Blue Ocean Strategic Capital in Syracuse, N.Y.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

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