Funding an IRA when retired

Question: My wife and I just retired last June. She just turned 60 and I will turn 59 soon. We own our home and cars, we have no credit card debt and our savings (not including retirement accounts) is almost $100,000. Our kids both finished college without accruing debt (thank you very much!). As I completed our taxes this spring, the amount owed is almost $2,400. If we open an IRA for $8,000, the amount owed drops to under $1,200. Does it make sense for us, at this point in our lives, to invest in the IRA for the tax savings? Part of me says it is a no-brainer; the other part says that investing in an IRA when you are already retired doesn't pass the common sense test. What do you think? Mike, Blue Earth, MN

Answer:  Obviously, your finances are in good shape. You have a lot of flexibility, since you have savings and no debt. Even though you're retired, it can be a sensible move to put some money into your IRA.  

The main reason for putting money into the IRA is that you save on taxes now and you might be in a lower tax bracket when you take the money out. It's a savvy move, which on its own is enough reason to continue saving in your IRA. 

But I want to raise another reason for continuing the discipline of setting some money aside in a retirement savings plan. It all depends what you mean by retirement. Retirement often means saying goodbye to colleagues for the last time. It doesn't necessarily mean to stop working. Often, people want to stay engaged, earn some money, and try to make a difference in the last third of life.

"The narrowing of time left to live changes people's values and priorities," said Marc Freedman, head of Civic Ventures, a San Francisco-based non-profit that is focused on helping an aging population find meaning in their work in the latter stages of life. "Now there's enough time because of increased life expectancy to do something about it."

You're still young. Earning a paycheck -- even a slim, part-time one -- carries a number of benefits. Social Security benefits are more than 75 percent higher at age 70 than at age 62. Earning at least some income allows for additional contributions to go into retirement savings plans. As long as you have earned income, why not take advantage of your IRA tax shelter (assuming your tax bracket will be lower when you stop working altogether)?

Work is also a social environment, with birthday celebrations and coffee klatches, friends and acquaintances, people to swap gossip and stories with, neighbors to commiserate with over divorce, and to congratulate on pregnancy. Again, many people want to do something very different, perhaps moving from the private sector to a non-profit, or working a flexible few-hours-a-week schedule. Still, "for most people, work is a community," says Meir Statman, finance professor at Santa Clara University.

So, even though you're retired, it seems sensible to put money into your IRA.   

About the author

Chris Farrell is the economics editor of Marketplace Money.

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