Retirement Planning

You’ve planned, saved, and waited for retirement for years. When the time to stop working finally arrives, what will you do? You may be surprised to learn that many people go back to work.

People make this choice for a few different reasons. Some need the money, others crave social interaction, and some miss working for a goal or cause about which they’re passionate. Whether your motivation falls into one of these categories or a different one, following are questions to ask yourself before deciding to start working again after you retire.

Do You Need the Money?
Many Americans lack the necessary savings to maintain the same lifestyle in retirement that they had when employed. Others underestimate how long they’ll live after retirement and don’t have enough saved to last the rest of their lives. One obvious benefit of going back to work is earned income.

Given the current inflation rate and rising interest rates, it makes sense that many retirees return to work because they need money. But adding income doesn’t just affect your bank account and spending capacity. It also has ramifications on your social security payments, health benefits, and pension.

Social security. If you’ve reached full retirement age (66 or 67, depending on when you were born), additional income from a job won’t reduce your social security benefits. If you’ve opted to start collecting social security before your full retirement age, however, there is a limit on how much you can earn without having your benefits reduced. The limit in 2023 is $21,240. If you earn more than that at your job, you will have $1 withheld from benefits for every $2 over the limit. Thankfully, once you reach full retirement age, that money will come back to you in the form of a higher check each month.

Health benefits. Once you turn 65, you qualify for Medicare. But earning additional income could push you to a higher tax bracket and, therefore, increase your Medicare premiums. If you’re able to get medical coverage through your job, that might provide a more affordable option. You can then reenroll in Medicare later, though that comes with rules and deadlines you’ll need to be aware of. The bottom line: Do your research on how working after retirement will affect your health benefits. Speak to a Medicare representative and/or benefits advisor at your company.

Pension. If you work for someone other than your original employer, your pension benefit won’t be affected—you can work, receive a salary from your new employer, and also receive your pension benefit from your original employer. If, however, you continue to work past your retirement date for the same employer or you retire and then return to work for that employer, your pension may be affected in various ways.

Different plans have different stipulations regarding working and receiving your pension, so it’s best to ask your company’s plan administrator what your plan says. It’s possible you can still receive your pension even if you continue to work. Other plans might suspend your pension while you work but will increase your payment when benefits resume to make up for the suspension. There are some plans in which you’d forfeit the pension benefits during the time you’re working. Find out what the rules are for your company’s plan so you don’t unexpectedly lose benefits.

Do You Miss Your Coworkers?
Even if you don’t need the extra income, you might miss the social interactions that come with a job. Or you might crave the mental stimulation from solving problems and working toward set goals. If your career was a passion, you might have a strong desire to continue working in that field after retirement. In these cases, you should still consider the financial effects of returning to work, but there are also nonmonetary factors to think about.

Work-life balance. If money isn’t an issue, consider a part-time or flexible-schedule job. Freelancing or consulting will give you control over your time and allow you to maintain a healthy work-life balance. Tap into a hobby or passion to find a job you will enjoy. These types of roles can provide a purpose, activity, and goals—and likely won’t feel as demanding as full-time work.

Health and well-being. The mental and physical toll of working is worth considering, too. If you’ve taken a break from your career due to retirement and you miss it, you might be forgetting stress or physical demands that came with the job. Be sure to assess the psychological and physical impacts of returning to work to ensure that your overall well-being isn’t compromised.

Deciding to work after retirement is a personal choice that should be based on individual circumstances and preferences. It offers the opportunity for financial security, mental stimulation, and passion pursuit; however, it also carries the risks of reduced leisure time, potential health challenges, and impacts on retirement benefits. It’s important to carefully weigh the pros and cons to make an informed decision that aligns with the retirement lifestyle you seek.As always, we’re available to advise you on retirement planning and the best course of action based on your personal goals and financial situation. Feel free to reach out to our office to discuss the option of working after retirement.

© 2023 Commonwealth Financial Network®

By Sarah Ruef-Lindquist
For Pen Bay Pilot Wave 

Sarah Ruef-Lindquist, JD, CTFA

Many of us spend between 35 and 45 years working, earning and saving for retirement. People retire and shift into a spending mode but they often want to be sure they will have what they need, and won’t outlive their money. Every day people thinking about their retirement ask me “How much do I need to have set aside to retire?”

Well, that depends. As financial advisors, we look at known data and estimate some other amounts as best we can.

First, we look at the sources of projected “guaranteed” income like pensions or social security, and consider especially the timing of beginning one’s draw on social security. Beyond your Full Retirement Age (“FRA” which depends upon the year you were born) you can add 8% to the value of your benefit by waiting a year, up until age 70, which is the current mandatory age to begin withdrawing from social security.

Once we have a good estimate of “guaranteed” sources of income, we look at savings: We look at “qualified” accounts, like 401(k)’s, 403(b)’s and IRA’s.  We look at ROTH accounts, that can be withdrawn tax-free. We look at non-qualified savings and investment accounts. We can use a ball park figure of 4% or maybe 5% (depending on how much someone wants to leave in their legacy at death) and calculate that percentage of both qualified and non-qualified savings that one could spend in a given year, and add that to the “guaranteed” amount we already estimated.

Then we look at expenses: usually the big unknown is health care. We examine lifestyle, whether there will be lower expenses upon leaving the workforce, or downsizing a home or moving, and what the resulting cost of living will be. Also, any plans to remain even part-time in the workforce. And we estimate whether there is excess income, or a gap to cover planned costs of living. This can help us determine if our current savings plan is “on track” or perhaps needs to be increased. Inflation is also a factor to be considered, now more than it has in recent years.

It makes sense to begin this kind of planning 10 years and certainly at least 5 years before any planned retirement date.  It also makes sense before making any significant elections, like social security withdrawals, that may be permanent. Get in touch with your Financial Advisor, and begin this very important conversation if you are planning your retirement.

Sarah Ruef-Lindquist, JD, CTFA

By Sarah Ruef-Lindquist
For Pen Bay Pilot 

There are not two, but three certain things in life: Death, taxes and change. This third element was brought home to us recently in the legislation that yet again would change the landscape for retirement planning, saving and spending in potentially radical ways.

A few years ago, the SECURE act increased the age at which one was required to draw out tax-deferred retirement savings from age 70 ½ to 72, causing a great deal of confusion initially, but simplifying the matter overall, since people have a hard time with half-year calculations. This allowed folks to wait a little longer before drawing out a required minimum distribution (RMD) and perhaps more significantly, paying income taxes on the withdrawal. It also allowed a bit more time for funds to grow tax free.

The IRS penalty for failure to make such withdrawal has been 50% of the RMD amount not withdrawn, a big incentive for making full timely withdrawals.

Now we are faced with the RMD age increasing again in 2023 to 73 (known as the RBD, or Required Beginning Date), and yet again in 2033 to age 75. Here’s how this would work for 2023: If you were born after December 31, 1950 (in other words, not yet 72 by 12/31/2022) then your RMD age is 73. So if you turn 72 in 2023, your RMD does not start until 2024.

Here’s an example of that. John’s birthdate is January 5, 1951. Under the “old” provision, he would have to begin his RMD in 2023, because he turns 72 on January 5, 2023. However, under SECURE 2.0 having not reached the age of 72 by 12/31/22, his RMD age would be 73. Technically, he does not have to take a distribution in 2024 when he turns 73 but could delay until April 1, 2025. However, since he would have another RMD amount in 2025, taking the 2024 amount in the same year as 2025 could result in higher tax rates applying, so he might be smart to go ahead and start in 2024 with his first minimum distribution.

So RMD age is now 73, and your first distribution is not due until April 1 of the year following your 73^rd birthday, but it’s often better to take it in the calendar year of your RBD so you don’t have to take multiple distributions in the same tax year.

Also under SECURE 2.0 when we get to 2032, less than 10 years from now, RMD age will increase to 75 if you haven’t turned 74 by the end of 2032. So, in 2033, the age for RMD’s is 75.

Delaying the Required Beginning Date (RBD) for RMD’s – increasing the age to 73, and then 75 – offers retirement savers the opportunity to continue to allow their tax-deferred savings to grow free of tax until RMD’s begin and income taxes are paid on those withdrawals.

The original SECURE Act also eliminated the age limitation on making contributions to IRA’s in recognition of people working later and later in life, just as the increase in the RMD age recognizes a tendency for people to continue to earn income beyond more a traditional retirement age of 65 and have less reliance on retirement income until much later in life.

So we could say we are starting 2023 with positive news on the retirement savings and planning front. There’s much more to the legislation knowns as SECURE 2.0 but we’ll save that for another time.

By Sarah Ruef-Lindquist
For Pen Bay Pilot 

In late October, the IRS announced new limits increasing the amount that taxpayers may contribute to their retirement plans each year beginning in 2023: the amount individuals will be able to contribute to their 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan in 2023 increased to $22,500, up from $20,500 for 2022.

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $7,500, up from $6,500. Therefore, participants in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan who are 50 and older can contribute up to $30,000, starting in 2023.

The amount individuals can contribute to their SIMPLE retirement accounts is increased to $15,500 from $14,000. The catch-up contribution limit for employees aged 50 and over who participate in SIMPLE plans is increased to $3,500, up from $3,000. This translates into a contribution limit for those aged 50 and older of $19,000.

Similarly, the $6,000 contribution limit for IRAs is increasing to $6,500. The catch-up amount remains the same at $1,000.

These increased amounts expand the ability of workers to put into their tax-deferred qualified plans and IRAs amounts that are able to grow and earn income tax-free, until withdrawn, when income tax is usually due, unless the account is a ROTH, in which case it is not taxed upon withdrawal.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), Roth IRAs, and to claim the Saver’s Credit all increased for 2023. FMI, visit https://www.irs.gov/newsroom/401k-limit-increases-to-22500-for-2023-ira-limit-rises-to-6500 and consult with your financial and tax advisors to the impact of all of these provisions and changes on your unique financial plans.

By Abraham Dugal, CFP®

Employers play a crucial role in helping their employees save for retirement by offering them an employer sponsored retirement plan that the employees can contribute to, and the employers may even offer a matching contribution to incentivize them to save. The most well-known of these plans are known as 401(k) plans, which allow for employees to contribute money from their earnings on a pre-tax or post-tax basis. The employer can decide whether they would like to make an employer contribution or matching contribution, but they are not required to do so. 401(k) plans offer several different options and are the most customizable retirement plans available.

Savings Incentive Match Plan for Employees, more commonly known as SIMPLE IRA plan, have fewer features but also cost less to the employer to implement and on an ongoing basis. The biggest difference between SIMPLE IRA plans and 401(k) plans are that SIMPLE IRA Plans require that the employer provide a matching contribution to eligible employees. This can be achieved in one of two ways: 1) contribute 2% of all eligible employees’ wages whether the employees contribute their own funds or not, or 2) match all eligible employees up to 3% of the employees’ contributed earnings to the plan. The SIMPLE IRA is available to all employers with fewer than 100 employees.

In June 2021, Maine signed into law the Maine Retirement Savings program, which will require that all businesses with 25 or more employees will have to offer a retirement savings plan to their employees by April 1, 2023. Those with 15-24 employees will need to offer a plan by October 1, 2023, and finally employers with 5-14 employees will need to make offer a plan by April 1, 2024. Allen Financial Group is here to help!

Read Abraham Dugal at 236-4311 or by email at email hidden; JavaScript is required