2007Sep Delayed Retirement
2007Sep Delayed Retirement
Delayed Retirement Considerations
What is delayed retirement?
If you cannot afford to retire or if you still enjoy working, you might want to consider delaying retirement. You can delay your retirement simply by working past the normal retirement age as defined by the Social Security Administration. This could mean that you continue to work full-time or that you work part-time, for either the same or a different employer, to supplement your retirement income. It could also mean that you've started up your own business venture. In any case, a delayed retirement involves continuing to generate at least some employment earnings as an alternative to full-time retirement leisure mode. In this case you have joined the ranks of “the Bridgers” – bridging themselves from a traditional career into a partial retirement.
Social Security benefits
The Social Security Administration gives anyone who reaches the normal retirement age the opportunity to delay retirement. If you delay it, your Social Security benefits may increase for two reasons. First, each additional year that you work adds another year of earnings to your Social Security record, resulting in higher retirement benefits. Second, under the Social Security Administration's delayed retirement credit, there is a percentage increase to your benefit for each month that you delay retirement up to age 70. The percentage increase varies, depending upon the year you were born.
Example(s): Hal works at the local nuclear power plant. He wants to work past the normal retirement age and delay his Social Security retirement benefits. Since Hal was born in 1933, he is eligible for a delayed retirement credit of 5.5 percent for each year that he works past the normal retirement age, up to age 70.
Tip: President Clinton signed into law the Senior Citizens' Freedom to Work Act of 2000. As a result, beginning with the month in which you reach full retirement age and ending with the month before you reach age 70, you can now earn a delayed retirement credit for any month in which you (the retired worker) request that your Social Security benefits not be paid (even though you're already on the benefit rolls).
Caution: Although you can delay your Social Security retirement benefits, you still have to sign up for Medicare once you reach age 65.
IRAs and employer-sponsored retirement plans
The longer you delay retirement, the longer you can build up the tax-deferred funds in your IRAs or employer-sponsored retirement plans, up to a point. If you have a traditional IRA, you have to start taking required minimum distributions once you reach age 70½. If you fail to take the minimum distribution, the IRS will assess a 50 percent penalty on the amount that should have been distributed. If you have money in your current employer's retirement plan, as long as you are not a 5 or greater percent owner, the required minimum distribution rules do not apply until you reach age 70½ or retire, whichever occurs later. If you have a Roth IRA, you don't have to take withdrawals from it at any point, and you can contribute to it well after age 70½.