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5 Ways Going Back to Work Affects Your Retirement Income Strategy

Posted by Michael J. O'Connor | CWS®, Vice President Investments
April 6, 2016

Going-Back-to-Work_Affects_Retirement-Income.jpgRetirement sometimes means being busier than ever, and for some that’s because you have re-entered the workforce with a new passion or a new project (the income is nice too).

If you’ve returned to work or are thinking about it, it’s important to consider how your additional retirement income could affect other parts of your investment plan. Walk through these five questions with your financial advisor to see how you might be affected.

1) How Will the Income Affect My Social Security Retirement Benefits?

If you are already collecting Social Security retirement benefits, and you are below the normal retirement age (between 66 and 67 for those born after 1943), then your benefits will likely be reduced depending on how much income you are making. The law states that for every $2 you earn above the annual limit ($15,720 for 2016), you get $1 less of Social Security benefits. This is known as the “earnings test.”

This reduction lasts until you hit the normal retirement age, at which time your benefits are no longer reduced. You can check the earnings test to see whether you will have a reduction in benefits by using the Retirement Earnings Test Calculator.

Note: Any reduction in Social Security retirement benefits due to the earnings test is temporary, much like a “withholding.” Your benefits are reduced while you’re working, but you will get the money back in the form of higher benefits once you reach normal retirement age. Be sure your financial advisor factors these income shifts into your long-term investment plan.1

2) Will My Social Security Retirement Benefits Now be Taxable?

If your income total exceeds $25,000 (single) or $32,000 (married filing jointly), then part of your Social Security retirement benefits are taxable. This can affect the ‘bottom-line income’ you take home during retirement, so should be considered as part of your retirement income strategy for the year.2

3) Will it Affect My Medicare/Health Care Coverage in Retirement?

Two considerations here – first, if you are 65 and older and already have Medicare, you want to take time to speak with the Human Resources department of the new employer to see how their health coverage works with Medicare. Second, if you are below 65 and have private insurance, you should not automatically drop your plan in favor of the new employer’s plan. You can work with the Human Resources Department of your new employer to evaluate the costs and benefits of each plan.

4) Can I Contribute to a New Retirement Plan? Are My RMDs Affected?

Rules for Traditional IRAs do not change if you return to work, so once you reach 70 ½ you have to start taking RMDs. However, you should be able to contribute to your employer’s retirement plan beyond age 70 ½ without having to make mandatory withdrawals from the plan.1 Have your financial advisor check with the plan administrator to see if this is the case.

5) Should I Make Adjustments to My Investment Portfolio?

Additional income from work could mean a shift in the objectives for your investment portfolio. If, for instance, your primary goal was to generate retirement income from your investments, that goal could change based on your new work. That could mean adjusting the portfolio accordingly. Your financial advisor should analyze your investment plan for the changing retirement income needs, and recommend asset allocation adjustments if necessary.

Talk to a Wealth Manager About Your Decision to Return to Work

One of the Wealth Managers at WrapManager can help you evaluate your decision to re-enter the workforce. An investment plan can bring light to the impact of the additional income, and we can help you make adjustments to your financial situation accordingly. Call us today at 1-800-541-7774 to get the conversation started or contact us here.


1 Charles Schwab

2 IRS.gov

To the extent this presentation includes any federal tax advice, the presentation is not intended or written by WrapManager, Inc. to be used, and cannot be used, for the purpose of avoiding federal tax penalties. WrapManager, Inc. does not advise on any income tax requirements or issues. Use of any information presented by WrapManager, Inc. is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

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