Does Semi-Retirement Expose You to More Risks?
Retiring is tricky enough, and retirement planning is also not a walk in the park. Those who decide on a semi-retired life should be aware of a few things before moving forward.
Working for Your Current (and likely last) Employer:
Depending on the company, if you reduce your hours, you may still be eligible for your employer’s retirement plan and health benefits. For instance, if you are still able to contribute to your 401(k) with your employer match while working 30 hours weekly, you may want to consider this as an option. It is a great way to keep the retirement funds increasing, and it is a great potential way to increase your Social Security benefits since you work history will continue and you are still paying into it from each paycheck.
Semi-retirees often find themselves in a higher tax bracket due to retirement income withdrawals, required minimum distributions, Social Security, and the part-time job income that is flowing in. Reducing your work hours and the withdrawals from your retirement accounts is the best way to combat this higher tax bracket. Depending on where you are financially, a Roth conversion may also be an option.
Social Security Risk
CPAs who work before full retirement age and receive Social Security benefits are subject to have their benefits reduced monthly. The exemption limit was $18,960 in 2021 and for 2022 is $19,560. Making more than the limit means your benefits are reduced by $1 for every $2 made over the limit. And once you reach the full retirement age the SSA has calculated, your benefits are reduced by $1 for every $3 over $51,960 in 2022. Please note these limits are predicted to increase for 2023, but announcements for this information are not released until the start of the 4th quarter.
Once you are 65 you are eligible for Medicare. However, if you are still working, even part-time and qualify for your employer’s healthcare plan, you will have both plans and will need to work out coordination of benefits. Outside of Medicare Part A, there are premiums. For Part B enrollees pay $170.10 monthly in 2022 with a deductible of $233. Deciding to delay Medicare Part B may result in a penalty. You may even opt into a MediGap or Medicare Advantage Plan based on your needs. Considering your options carefully before you enroll into Medicare and are semi-retired is crucial. The earlier you investigate Medicare options the better off you will be.