Many may keep working out of interest rather than need.
Baby boomers realize that their retirements may not unfold like those of their parents. New survey data from The Pew Charitable Trusts highlights how perceptions of retirement have changed for this generation. A majority of boomers expect to work in their sixties and seventies, and that expectation may reflect their desire for engagement rather than any economic desperation.
Instead of an “endless Saturday,” the future may include some 8-to-5.Pew asked heads of 7,000 U.S. households how they envisioned retirement and also added survey responses from focus groups in Phoenix, Orlando and Boston. Just 26% of respondents felt their retirements would be work-free. A slight majority (53%) told Pew they would probably work in some context in the next act of their lives, possibly at a different type of job; 21% said they had no intention to retire at all.
Working longer may help boomers settle debts. A study published by the Employee Benefit Research Institute in January (Debt of the Elderly and Near Elderly, 1992-2013) shows a 2.0% increase in the percentage of indebted households in the U.S. headed by breadwinners 55 and older from 2010-13 (reaching 65.4% at the end of that period). EBRI says median indebtedness for such households hit $47,900 in 2013 compared to $17,879 in 1992. It notes that larger mortgage balances have been a major factor in this.
Debts aside, some people just like to work. Those presently on the job expect to stay in the workforce longer than their parents did. Additional EBRI data affirms this ““ last year, 33% of U.S. workers believed that they would leave their careers after age 65. That compares to just 11% in 1991.
How many boomers will manage to work past 65? This is one of the major unknowns in retirement planning today. We are watching a reasonably healthy generation age into seniority, one that can access more knowledge about being healthy than ever before – yet obesity rates have climbed even as advances have been made in treating so many illnesses.
Working past 65 probably means easing into part-time work – and not every employer permits such transitions for full-time employees. The federal government now has a training program in which FTEs can make such a transition while training new workers and some larger companies do allow phased retirements, but this is not exactly the norm.
Working less than a 40-hour week may also negatively impact a worker’s retirement account and employer-sponsored health care coverage. EBRI finds that only about a third of small firms let part-time employees stay on their health plans; even fewer than half of large employers (200 or more workers) do. The Transamerica Center for Retirement Studies says part-time workers get to participate in 401(k) plans at only half of the companies that sponsor them.
Boomers who work after 65 have to keep an eye on Medicare and Social Security. They will qualify for Medicare Part A (hospital coverage) at 65, but they should sign up for Part B (doctor visits) within the appropriate enrollment window and either a Part C plan or Medigap coverage plus Medicare Part D.
Believe it or not, company size also influences when Medicare coverage starts for some 65-year-olds. Medicare will become the primary insurance for employees at firms with less than 20 workers when they turn 65, even if that company sponsors a health plan. At firms with 20 or more workers, the workplace health plan takes precedence over Medicare coverage, with 65-year-olds maintaining their eligibility for that employer-sponsored health coverage provided they work sufficient hours. Boomers who work for these larger employers may sign up for Part A and then enroll in Part B and optionally a Part C plan or Part D with Medigap coverage within eight months of retiring – they do not have to wait for the next open enrollment period.
Prior to age 66, federal retirement benefits may be lessened if retirement income tops certain limits. In 2015, if you are 62-65 and receive Social Security, $1 of your benefits will be withheld for every $2 that you earn above $15,720. If you receive Social Security and turn 66, this year, then $1 of your benefits will be withheld for every $3 that you earn above $41,880.
Social Security income may also be taxed above the program’s “combined income” threshold. (“Combined income” is defined as adjusted gross income + non-taxable interest + 50% of Social Security benefits.) Single filers with combined incomes from $25,000-34,000 may have to pay federal income tax on up to 50% of their Social Security benefits in 2015, and that also applies to joint filers with combined incomes of $32,000-44,000. Single filers with combined incomes above $34,000 and joint filers whose combined incomes top $44,000 may have to pay federal income tax on up to 85% of their Social Security benefits.
Are boomers really the retiring type? Given the amazing accomplishments and vitality of the baby boom generation, a wave of boomers working past 65 seems more like a probability than a possibility. Life is still exciting; there is so much more to be done.
Your personal financial consultant – Monty