April 21 (Reuters) – The big retirement is turning into the big return, with the US jobs report for March released earlier this month showing a plunge back into the labor market among older workers. This reflects the ample number of jobs available – and reduced concerns about the health risks associated with COVID-19.
The pandemic forced millions of older workers into early retirement, causing many to stop saving and file for Social Security earlier than planned. This deprived her of the ability to later increase her monthly benefits through a late claim.
Working longer is a good way to supplement income in retirement. But if you consider yourself a “back to work” type of person, your retirement plan may need to be adjusted — particularly enrolling in Social Security and Medicare.
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SOCIAL SECURITY DO-OVERS
If you applied for Social Security but went back to work, you have a few options for re-filing the late application.
You can withdraw your application within 12 months of the start of benefits – but that may not be attractive as you would have to pay back any benefits paid up to that point.
The second option is to defer retirement benefits at full retirement age (FRA) or later to earn deferred retirement credits. But Social Security also allows you to suspend benefits when you reach your FRA – 66 and a few months for most people now approaching retirement. You can then continue accumulating deferred credits until age 70. You can only do this once, but delaying it could greatly increase your achievements later.
Your monthly Social Security benefit is determined by a formula tied to your FRA. From this point on, you can claim 100% of your earned benefits. You can apply for an old-age pension from the age of 62, but if you apply before full retirement age, your pension will be reduced by up to 6.7% per year. However, filing after your FRA results in an 8% increase for every 12 months late until age 70.
In the case of a suspension of benefits at the FRA, the calculation looks a little different, since the delayed crediting is calculated from the benefits you have already reduced. But the strategy can still be very valuable.
“This can add up to tens of thousands of extra dollars a year,” said William Meyer, co-founder of Social Security Solutions, which offers software aimed at helping retirees make optimal filing decisions. “It also creates a longevity hedge if you live longer than expected.”
Another note about Social Security: If you receive work and Social Security income before your FRA, your benefit will be reduced by the Retirement Earnings Test, which withholds one in two dollars in benefits over a certain amount of wage income. This year, the test applies to income above $19,560. These advantages are not lost. When you reach full retirement age, Social Security recalculates your monthly benefit to credit you with any withheld benefits.
The Social Security Administration has published a calculator that you can use to determine the impact of the test on your benefits.
MEDICARE: OBSERVE THE PENALTIES
If you return to work after claiming Medicare at age 65, you may have the option to switch back to employers’ insurance — but do so with great care.
Medicare requires you to enroll during a seven-month initial enrollment period, which includes the three months before, the month and the three months after your 65th birthday. Missing this window will trigger late payment penalties in the form of higher awards, valid for life.
There is actually only one important exception to these rules: You can defer enrollment if you are still working after the age of 65 and are insured through your employer, or if you receive insurance through your spouse’s employer.
The late registration penalty for Part B is 10% of the standard Part B award for every 12 months of delay. There are also penalties for late enrollment in the Part D Prescription Drug Program, although they are less onerous.
If you opt out of Medicare, you could face late penalties if you later re-enroll. Therefore, it is very important to understand whether your new employer’s insurance qualifies you for an exemption. Depending on when you enroll, you also risk having coverage delayed when you return to Medicare.
If your insurance came from active employment, you can delay without risking penalties. However, to ensure you are adequately insured, you should not opt out if you work for an organization with 20 or fewer employees. In these cases, Medicare becomes the primary payer at age 65, and you must be enrolled at that age to avoid high out-of-pocket expenses.
Aside from the enrollment rules, you should also compare an employer insurance option to Medicare to determine which is better for you personally and financially. “It’s a very personal decision,” said Casey Schwarz, senior counsel at the Medicare Rights Center. “But I would start by comparing how much you pay in Medicare premiums and expenses.”
If you get wage income and maybe Social Security, it’s easy to trigger Medicare Income-Related Monthly Adjustment Amounts (IRMAA). These are surcharges levied on Medicare Part B and Part D premiums for insureds with incomes above a certain level, which can significantly increase Medicare costs.
There are five bonus levels, defined by your modified adjusted gross income.
This year, the first tier applies to individual taxpayers with income over $91,000. Your monthly premium for Part B would be $238.10 instead of $170.10. Part D surcharge is lower – this year $12.40 for participants who fall in the first group.
SAVE: PLAY CATCH-UP
Returning to work sets the stage for resuming retirement planning at a later date. This year, you can contribute up to $27,000 to a 401(k) if you’re over 50; Your IRA contribution limit is $7,000.
The opinions expressed here are those of the author, a columnist for Reuters.
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Writing by Mark Miller Edited by Matthew Lewis
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