Watch for pitfalls if you work past retirement

December 1, 2014

WASHINGTON (12/2/14)--The thought of working past retirement is financially appealing to boomers who inadequately prepared for the big event. You hope you'll earn extra income, increase your Social Security income, and save money by extending health insurance benefits. But, if you're thinking about working after you retire, watch out for these financial pitfalls (U.S. News Nov. 10).

  • Medicare deadlines. Sign up for Medicare during the seven-month window around your 65th birthday, even if you're still working and don't need the coverage. If you miss the sign-up deadline, your Medicare coverage could be delayed and cost more;
  • Social Security sign-up date. If you are earning income and sign up for Social Security before your full retirement age, part or all of your payments might be temporarily withheld. The longer you delay claiming Social Security after your full retirement age, your benefits increase by 8% a year (for most boomers) up to age 70. After that, there is no additional benefit to waiting to claim Social Security payments; and
  • Required minimum distributions (RMD). Typically, you must start taking the RMD from your traditional retirement account after age 70 1/2. If you're still working, you might be able to delay taking the money out of one kind of traditional account, the 401(k). However, you must make RMDs from IRAs and 401(k)s from previous employers--if you don't, you'll pay a steep 50% tax penalty.

Although not a penalty, one more tax piece could affect your finances if you're still working after age 70 1/2: Don't count on tax deductions for contributions to a traditional IRA--you're no longer eligible.

For related information, use the calculator "How Long Will Retirement Savings Last?" and read "How to Calculate Your Retirement Needs" in the Home & Family Finance Resource Center.

Ask your financial professional to help you determine if you will face any additional financial effects for working during retirement.

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Home & Family Finance Resource Center

Plan It: Retire Ready Toolkit