The number of people who chose to keep working is expected to rise, as reported in a recent article from MarketWatch, “How to plan for retirement if you don’t plan to retire.” Their argument is straightforward: if I am fulfilled and engaged at work, why make a change?
The same financial planning rules don’t apply, since retirement will start only when frailty sets in. This will mean a much shorter time. Consider how this changes retirement planning, if you keep working.
You may be able to avoid required minimum distributions (RMDs). The IRS lets some people who are still working to delay RMDs until they retire. If you are still working for the company where you have a plan, you don’t own more than 5% of the company, and your plan allows it, you can delay distributions until the April 1 after you finally retire. The “still working” exception may let you to keep your tax bill down by just living on your salary and not forcing “required” retirement income by the IRS. But the “still at work” exception doesn’t apply to money you have in your IRAs (or prior plans), even if you are still employed. The 5% ownership requirement starts with your personal holdings but also may include ownership by family members.
If you have your money in a Roth IRA, there are no RMDs while you’re still alive, regardless of whether you are working. You may also be able to keep making Roth IRA contributions. The longer you hold the Roth, usually the better off you are.
You may be able to make retirement contributions or receive retirement contributions made on your behalf. If you’re still working, you may be able to keep making tax deductible contributions to your 401(k) plan and, when applicable, still get the employer match. Your regular contributions should continue from your employer, regardless of your age, if you’re still employed and meet the minimum hours required to be a plan participant. An exception to this is if you have a defined-benefit plan that caps the years of service that you count to determine your benefit.
In addition, you may be able take Social Security without losing benefits. The earnings test stops at full retirement age for anyone collecting Social Security.
If your original retirement plan included no salary income, you’ll want to do some new calculations based on a shorter period of time without a salary. You may not need to save as much money during your working life, since your working life will extend far past age 65 or 70. Discuss this with your CPA and estate planning attorney, since it may significantly alter the size of your estate, tax planning and gifting opportunities.
Reference: MarketWatch (November 10, 2017) “How to plan for retirement if you don’t plan to retire”