Retire Well

The new retirement: Working

Key Points
  • There are many financial benefits if you continue to work later in life.
  • It can also come at a cost if you're not careful.
  • Here are three things to watch out for.
Thinking of going back to work? Consider this first.
Thinking of going back to work? Consider this first.

For some soon-to-be retirees, retirement will look a lot like their 9-to-5 life.

Nearly 3 out of 4 Americans plan to work beyond traditional retirement age on at least a part-time basis, according to a recent Gallup poll.

A separate AARP study found that 37 percent of working Americans ages 50 to 64 said they intend to work after retiring from their current careers. Of those, 44 percent plan to enter new fields.

Of course, working in "retirement" has many financial benefits. Aside from the income, it can allow you to preserve your retirement savings for later in life and even keep building those assets in tax-advantaged retirement plans. (Contributions to traditional IRAs can only continue up to the year in which you turn 70½, but if you earn income past that point, you may be able to continue making contributions to a Roth IRA indefinitely.)

But that extra income can also come at a cost if you're not careful, according to Marcy Keckler, a vice president of financial advice strategy at Ameriprise Financial.

For ambitious retirees, here's are three things to watch out for:

1.) Reduced Social Security

If you haven't yet reached full retirement age (66 or older) and already collect benefits, the wages you earn through continued work could result in reduced Social Security payments.

Those who haven't already claimed Social Security may want to delay those benefits to earn a higher amount later down the road.

2.) Higher taxes

If you are taking income from retirement accounts or generating earnings from your savings or investments and earning income from a new job, that could move you into a higher marginal tax bracket, meaning those distributions and investment earnings would be taxed at a higher rate — so be prepared.

3.) Health insurance penalties

Talk to your employer about whether you should sign up for Medicare Part B (a monthly premium applies). If you delay enrollment in Part B, you may be subject to a 10 percent annual penalty.

However, if you are receiving health-care coverage through an employer, you may be eligible to get this penalty waived. Just check the rules carefully before you turn 65.

How you counter these potential hits could be the key to your retirement, if you ever do decide to stop working.

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