If you're considering semi-retirement, look at financial implications – Colorado Springs Gazette

People who’ve enjoyed their career and want to stay active might not be drawn to the idea of no longer working. Semi-retirement — working part time — can be a good solution for these folks.
The work might be in the same area as their career or in an entirely different industry. Either way, there are financial implications.
Some semi-retirees work to keep health insurance benefits for themselves or their family. Since people generally have to be age 65 to qualify for Medicare, this can be a big money saver, even if the job doesn’t pay enough to cover all your living expenses.
Some semi-retirees work because they want to avoid dipping into their retirement accounts. This might make sense for someone who is a bit short on saving for retirement. Earning just enough to cover living expenses and taxes gives time for retirement savings to grow, as well as cutting down on the number of years those savings need to cover.
For folks who have high balances in their retirement accounts and work to stay active, earned income can be two edged. Many semi-retirees who are healthy enough to work well into their 70s will find their wages create more income tax than they’d anticipated. Because there is no 100% tax bracket, the earnings still can help them come out ahead after tax cash flow. At age 72, there are Required Minimum Distributions (RMDs), which are based on the prior year-end account balances and the account owner’s age. If funds are in a 401(k) plan sponsored by the current employer, RMDs on that account can be waived. If retirement funds are in IRAs, RMDs will still need to be taken.
There are some tax strategies to mitigate the impacts of having both earned income and RMDs. If you are charitably inclined, RMDs can be made directly to qualified charities. Beginning at age 70½, you can take advantage of these Qualified Charitable Distributions (QCDs). Rather than taking a taxable withdrawal and then making a charitable donation, this is especially helpful to folks who donate to charity and don’t have enough in deductions to exceed the itemized deductions. QCDs are not taxable, so while there is no deduction, the distributions don’t go toward taxable income.
Diversifying the taxable character of retirement assets can lower taxes long term. If you have an employer that offers a Roth option in their retirement plan, look at whether that will give you some tax-free income in retirement. If you’re working more for the love of the work than the paycheck, having some retirement assets that will never be taxable and not be subject to RMDs gives you options. It may make sense to pay tax now rather than put more money into accounts that will require tax payments when you’re required to take money out.
If you’re considering semi-retirement, consider all the factors so your work meets the needs intended.
Linda Leitz can be reached at [email protected].
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