Planning to Not Retire

Strange as it may seem, there's a fair amount of folks out there who are planning to not retire. Yes, unfortunately for many this is a non-decision caused by the affordability issue. For others the decision to keep on working is driven by a variety of factors. But planning to not retire doesn't give one a pass on retirement planning. It's still just as important, even though the timeline might be different.

When I work with retirement-aged folks who don't plan on retiring (even when they can afford to), their reasoning is often that they are healthy, enjoy their work, and simply feel no reason to stop. Bucket list trips and personal to-do's? That's what vacations and weekends are for, right? When would they consider retiring? When they can no longer work, stop when they drop, pedal to the metal, etc, etc. Sometimes, it's enough for them to know that they can retire, which maybe makes it easier to get ready for work in the morning. If the boss gets on their nerves one too many times, they can Johnny Paycheck their way out of there and know they'll be fine financially.

If this sounds like you, here are some points to consider:

401(k) and Other Workplace Plans
You can keep contributing to your workplace retirement plan past "retirement age", as plans often allow employees to do this. This means continued tax-deferred saving and, assuming your employer offers it, matching dollars.

Additionally, should you continue working past age 70.5, you should be able to avoid taking Required Minimum Distributions (RMD) each year from your plan and having to pay tax on them. This is typically about 3.6% of your balance the year you're 70.5 and goes up each year after that, so keeping those dollars in your plan can save you money.

This would only be for regular employees, however, not those who own a chunk, or all, of the business. Also, putting RMDs on hold is only allowed for the workplace plan and not other old plan accounts (from former jobs, for example) or IRAs. One idea would be to roll eligible accounts into your current plan to delay RMDs entirely. But first ensure your current employer plan has good quality investment options and is reasonably priced. Workplace plans are notorious for being expensive and, depending on the dollars involved, extra costs could outweigh potential tax savings.

You Could Keep Making Roth IRA Contributions
Traditional IRAs have an age limit of 70.5 for making contributions, but Roth IRAs don't. But you must have earned income from wages and the IRS establishes income thresholds for this. If you're RMD-age or older, are married and file a joint tax return, and your Modified Adjusted Gross income is less than $189,000 but not over $199,000, you could contribute $6500 this year, or less if you're within that range. You could continue to do so every year you have wage income, so long as that income was less than the threshold. For single filers it's $120,000, phasing out by $135,000.

Retaining Other Employee Benefits
If you're like most workers, your health insurance, life and disability insurance, and maybe even long-term care insurance are wrapped up in your workplace benefits package. When you leave the company you typically also leave the benefits. But by continuing to work longer you can retain the privileges that come from working with a, presumably, mid-size or larger employer. This could save you money versus buying the same insurance in the private market. One exception to this is Medicare, which you're still required to sign up for just prior to turning 65, even if you're still working. Medicare then starts coordinating with your workplace plan, but the details of this are way beyond the scope of this post. Lots of people mess this up, so do your homework and plan accordingly.

Doubling up on Income with Social Security
If you're still working past age 62 you could start taking your Social Security benefits anytime. While this gets more money flowing into your household, starting your benefits prior to your Full Retirement Age (FRA - typically from 65 to 66 and some months) means a reduction in benefits that will last your lifetime. Making matters worse, if you start your benefits prior to your FRA you'll be paying back $1 for every $2 you earn over an annual income limit, which was about $17,000 last year.

More details go into this, of course, but the takeaway should be there are no freebies. If you're working full-time, or even part-time, it's best to avoid starting your benefits until at least FRA, when this discounting goes away, and you can double dip all you want. Ideally, working longer lets you delay starting your benefits perhaps until age 70 when they stop accruing, but determining this requires proper planning.

Living Large by Saving Less
Working longer could mean needing to save less, which some might see as a good thing. The thought process might be, hey, I intend to work as long as possible which makes the retirement I am saving for shorter. Shorter equals cheaper, so I don't need to save as much. I can buy that boat instead of putting money into my 401(k), and use it on my days off. It would be like a work/retirement hybrid. Or, maybe I can take money out of my 401(k) to buy the bigger boat I really want. That's what the money is for, right?

While this thought process might make sense from a certain perspective, it's fraught with risk and should be avoided. What if your situation changes? Maybe it's an injury, family issue, or just a change in life goals. You don't want to put yourself into a corner unintentionally. Also, money pulled from your retirement account will be added to your other taxable income, making the boat even more expensive due to the income taxes paid to acquire it. Instead of paying taxes on, say, $120,000 of income, it's tax on $170,000, or however much more you need to buy the boat. Not very much fun, especially if you first learn about it at tax-time.

For all these reasons and more, planning to not retire doesn't give you a pass on planning. Proper planning will get you the information and analysis you need to have a better chance at accomplishing your goals, whether it's retiring earlier, later, or maybe even never. Plan well, and maybe you can still get the bigger boat without sinking your retirement plans.

Have questions? Ask me. I can help.