In earlier generations, "retirement" meant what it sounds like -- a cessation of working. Not any longer. Many Arizona Rim Country residents who "retire" from one career, may well launch into another, either as a consultant, a small-business owner or a part-timer. But if you're going to do some type of work after you retire, you'll want to make sure you're also protecting your other sources of retirement income.
Toward that goal, keep these points in mind:
- Earnings won't endanger Social Security payments. Until a few years ago, you would have lost $1 in Social Security benefits for every $3 of earnings over an annual cap, assuming you were between 65 and 69. But, as a result of legislation passed in 2000, you can now earn as much as you want and still receive your complete Social Security benefits, provided you've reached "full" retirement age, which is based on your year of birth.
- Working could allow you to postpone 401(k) distributions. Your 401(k) plan provides you with several key benefits, especially tax deferral. Because you pay no taxes on your earnings until you start taking withdrawals (or "distributions"), your money will grow faster than it would if placed in an investment on which you paid taxes each year. So, by working after you officially retire, you may be able to afford to wait before taking 401(k) distributions, thereby maximizing the
power of tax deferral. Or, you could decide to roll over your 401(k) to an IRA, which offers more investment options. In any case, there's a limit to how long you can wait. Unless you are still working for the same employer, you must begin taking minimum 401(k) distributions by April 1 of the year following the year in which you reach age 70.5.
- Look at the whole picture. If you choose to work after you retire -- or even if you need to work -- take the time to understand how your earnings will affect your financial situation. By making sure all the pieces fit together, you can solve the retirement income "puzzle."
-- Ross Hage is a licensed financial adviser with the firm of Edward Jones. Call (928) 468-2281.