| Sargent & Lundy Savings Investment Plan |
| WHEN IT PAYS TO WORK PAST AGE 65 |
| The following excerpts are from an article in the March
1998 issue of "Money" magazine. The opinions of the author, Susan
Berger, may or may not reflect those of the SIP Committee.
First comes the retirement dream: Leave work, head for the golf course, live off your savings and Social Security. Work doesn't really fit in. After all, retirement is supposed to be about not working. Besides, if you're under 65, Social Security docks your benefits by a dollar for every two you earn above $8,640, and if you're 65 through 69, you're docked one dollar for every three you earn above $13,500. So what's the point? The point is that sometimes reality intrudes on the dream. Maybe you have a younger spouse not yet eligible for Medicare and still in need of your company's health insurance. Perhaps you have a child racking up college tuition bills, or maybe you're bored just playing golf. For a multitude of reasons, 3.8 million seniors are in the labor force, and according to the Bureau of Labor Statistics, that number will increase 13% to 4.3 million over the next decade. Joyce Taylor McClung, 66, of Wilmington, Del. is one of those people. An interior designer for the market department of the Winterthur Museum, which specializes in American decorative arts, McClung finds that working allows her to afford favorite pastimes like traveling and attending the opera. What's more, it lets her maintain her dental and disability benefits. And she's also able to save in impressive $4,000 a year in her tax-deferred retirement plan. Assuming a 6% return, that will add approximately $18,000 to her nest egg if she continues working, as she thinks she might, until age 70. Beyond those benefits, she says that having a career "helps my relationship with my children, because I have a focus of my own rather than depending too much on them for my entertainment." Clearly, working past 65 is paying off for McClung. But it might not make sense for you, depending on your health, personal and financial needs. So as you ponder continuing your career - or starting a new one - beyond the age most people call it quits, consider the following checklist. Advantages 1. You can really shore up your retirement stash. Just a few additional years on the job can have an enormous impact on your financial security. Not only do you gain the additional contributions and growth in your savings plans but you also have fewer years to provide for in the future. For example, let's say a 65-year-old who earns $65,000 a year has $300,000 in her 401(k). Russell Kelley, vice president at the Ayco Co., a financial planning firm, calculates that if she retired today, that sum would provide an inflation-adjusted income of $23,760 over her expected remaining life span of 20 years, assuming she earned 8% on her money. If she worked for just another five years, however, her 401(k) would grow to $481,950, assuming 3% pay raises, a 10% contribution rate and a 3% company match. Add in the fact that her expected life span would be shorter, and her projected income would start at $43,820, an 84% increase. Working also builds a cushion into your strategy for retirement. "People tend to overestimate how long their savings will last," says Dallas Salisbury, president of the Employee Benefit Research Institute, a nonprofit research group in Washington, D.C. "And frequently they don't factor the cost of emergencies into their retirement plans." Continuing to work lets you buildup the reserves to cover those unanticipated expenditures - not to mention the occasional luxury. 2. You can hang on to your insurance. You can usually keep your dental, disability and even life insurance. And business generally let older workers maintain health coverage for themselves and their spouse. 3. You can stay involved. "If you cannot think of anything you would rather be doing than working, there is no reason to stop," says Martin Sicker, the former work-force programs director for the American Association of Retired Persons (AARP). Trade-Offs 1. Social Security might cut your benefits. When you work while collecting Social Security, you are subject to an "earnings test" until age 70. If you're 65 through 69, that means your Social Security income is reduced by $1 for every $3 you earn above $13,500. (Good news: The $13,500 threshold is slated to rise to $30,000 by the year 2002.) Earning an annual salary of $61,236, therefore, would wipe out a 65-year-old's maximum current Social Security benefit of $15,912. From 70 on, you can collect full benefits no matter how much you earn. You can choose to defer collecting Social Security, and your monthly check will increase annually until age 70. The benefit increase for people turning 65 in 1997 is 5% for each year you delay taking benefits, or 25% overall for five years. But, depending on your income, these credits might not make up for having forgone Social Security checks before 70. It could take as much as 20 years, for example, to make up the payments you miss from age 65 to 70. So it makes sense to delay taking benefits only under certain circumstances. Among them: having a younger spouse, who will be eligible for survivor benefits based on your Social Security rates, or being so far over the $13,500 income limit that the earnings penalty seriously erodes your Social Security money. There's another trade-off to consider. The higher your wages, the more likely it is that your Social Security benefit will be taxed. To figure out how big a bite Uncle Sam will take, add your tax-exempt income (such as municipal bond interest) to other income (such as wages, taxable interest, dividends, IRA, 401(k) and pension payments) and half your Social Security benefits. If you're married and the sum is between $32,000 and $44,000 - or if you're single and the sum comes to between $25,000 and $34,000 - you have to include 50% of your Social Security benefits with the taxable income on your tax return. If the sum exceeds those limits, you have to include a full 85%. 2. You are somewhat more likely to owe the "success" tax. The later you tap your tax-deferred retirement plans like IRAs, 401(k)s and pensions, the more money you will receive from them each year. That's because once you reach age 70 1/2, you must annually withdraw at least enough to deplete your account over your life expectancy. (The older you are when you begin withdrawals - that is, the shorter your life expectancy - the bigger those withdrawals must be.) That may sound like a good problem to have, but if you pull out too much money, you could come down with a massive tax headache. Under a law currently suspended but due to be revived in the year 2000, you can be hit with a 15% excise tax - the so-called success tax - if you withdraw more than $160,000 (an amount subject to cost-of-living adjustments) in a single year from all qualified tax-deferred plans, including pensions, 401(k)s, IRAs and annuities. The tax is levied on top of the regular income tax you would owe on the withdrawals. 3. Some perks will disappear. Firms that provide life insurance may decrease your benefit when you turn 65. And some companies will cap your pension after a certain amount of service, typically 35 years. Moves to make About a year or so before you decide whether to work past 65, talk to your tax adviser to figure out the tax consequences. Then call the Social Security Administration to find out how your benefits may be reduced based on the salary you expect to earn. If staying in the work force decimates your Social Security money, you may want to delay benefits until you stop working or hit 70. Finally, ask your employer which company benefits you can hang on to if you stay on the payroll. If there are few, ask whether you can retire and sign on as an independent contractor or part-time employee. That way, you'll be able to draw your pension without completely leaving your job. (Your employer can't cash you out until you separate from service.) Of course, there's nothing wrong with retiring, collecting your pension and going to work somewhere else. Indeed, that may capture on of the chief benefits of working past 65. At that age, you've earned the right to do what you want. |
This page updated on 3/15/99