You picked your goals, set out to accomplish them and then it happened—life. It gets us all at some point. So what do you do when that happens, especially when it comes to your retirement plans? How can you adjust your financial plan when you’re forced out of retirement? Here are a few tips to help you make the most out of the detour.
1. What’s the best way to approach your current retirement withdrawal rate if you’ve got a paycheck coming in again?
So you are now earning income in retirement. What’s next? Start by examining your budget. Look at your total income including your new employment income, your social security income, your pension income and any income you’re taking from your investments. If your income exceeds your expenses, try reducing the supplemental distribution. Keep the minimum needed to maintain your desired lifestyle. If you go back into full retirement, you’ll want more put back for you to dip into.
2. Should you restart your retirement savings with a Roth IRA/401(k)?
If you’re earning income, then you definitely have the luxury of saving once again. It can give you some much-needed tax relief. It very well could be advisable to start contributing to a 401k or IRA. If you don’t need the tax break, at least consider a ROTH IRA. If money is coming in, like I said before, putting money back is always a wise choice and you’ll likely reap the benefits of the ROTH IRA.
3. What happens to your Social Security benefits? Will they be reduced if you haven’t reached normal retirement age?
If you currently receive social security but aren’t at your normal retirement age, then your social security benefits are
already reduced. As a general rule of thumb, if you are going to work in retirement, avoid drawing on social security until you reach your normal retirement age. The Social Security Administration has a calculator page which is helpful in determining the adjustment to this benefit, so you know before you take the job how your long term plans are affected.
4. How does going back to work in retirement affect your tax situation? What’s the best way to plan ahead for that?
When you earn income, Uncle Sam’s hand is out. If you have the opportunity to earn income, you’ll want to work with your planners and tax professionals to determine the best way to reduce your taxation. Things like 401k contributions, adjustments to your withdrawal rates, itemization on taxes, and business dedications are all various ways to possibly reduce your taxes when earning income in retirement.
So when it comes to being forced out of retirement, look on the bright side and dig into your finances. There are ways to make the best of it. Consult with your financial professional for your specific situation.
Justin Goodbread, CFP® is the founder of Heritage Investors in Knoxville, TN where he helps individuals, businesses, and nonprofits attain their financial goals. You can read his writings on his blog “Financially Simple.”
Contact Justin: [email protected] (865) 690-1155
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