Actually, the exact opposite is true. If you’re 50 or older, you should be even more focused on maxing out your employer’s plan than ever. Once you reach the big 5-0, you can step up your savings through the power of catch-up contributions. This is an additional amount you can chip into your employer’s plan just for hitting the age threshold.
For 2017, 401(k) savers can add an extra $5,500 to their plan, on top of the regular $18,000 annual contribution. If you haven’t always been consistent about taking full advantage of your employer’s plan, that’s a huge plus when it comes to making up for lost time.
Catch-up contributions also apply to IRAs. If you’re saving in a traditional or Roth IRA, you can save an extra $1,000 for 2017, in addition to the annual $5,500 contribution limit. The more money you can pour into these plans in your 50s and 60s, the better, especially if you’re planning to keep working longer and delay taking Social Security.
Speaking of Social Security…
Once you turn 62, you can begin drawing Social Security benefits, even if you’re still working. The catch is that doing so could temporarily reduce your benefit amount. If you’re below full retirement age (which is 66 or 67 for most people), the Social Security Administration deducts $1 from your payments for every $2 you earn above the annual limit. In 2017, the earnings limit is $16,290.
If you hit your full retirement age and you’re still working while also receiving benefits, the deduction changes to $1 for every $3 you earn above a preset limit. For 2017, the limit on earning is $44,880 and only earnings before the month you reach full retirement age are counted. In the month you reach full retirement age, your earnings won’t reduce your benefits, no matter how much money you’re making.
That’s something to keep in mind if you’re changing jobs in your 60s and you’re expecting a lower salary. If you need to take Social Security early to supplement your income, you need to be aware of how those limits could affect your benefits check.
If you think work may be on the horizon for the long-term and your new job is paying the bills, you should also think about the benefits of putting off Social Security. For each year you delay benefits past your full retirement age, your benefit amount increases. If you can hold out until age 70 to start drawing benefits, you’ll get an 8 percent raise in your monthly payment.
Don’t forget about health insurance
Health care can be one of the biggest threats to your retirement security. If you’re planning to switch jobs in your 40s, 50s or 60s, you need to be planning for how changes in your health insurance coverage could affect your ability to save. If you’re paying more in premiums at your new job, for example, that may mean you’re able to funnel less cash into your employer’s retirement plan.
You can opt to enroll in Medicare once you turn 65, even if you’re still working but there’s one potential hitch to consider. If you’ve been saving in a tax-advantaged Health Savings Account through your employer’s plan, you wouldn’t be able to keep making those contributions if you’re covered by Medicare. In the end, you have to think about how the advantages of taking Medicare stack up against the benefits of keeping your employer’s plan.