There are many reasons people choose to keep working in retirement. Here, CKS Summit Group breaks down the good, the bad and the potentially unexpected consequences of choosing to work during your golden years.
It’s perfectly normal to assume that once you hit retirement age, your working years are behind you. However, that’s not always the case. Whether it be due to financial reasons or a genuine desire to carry on working, many Americans find themselves with a post-retirement career. In fact, nearly 9 million Americans ages 65 and over are working part- or full-time, according to a recent Pew Research Center analysis.
Before you decide working through some of your retirement is for you, there are a few things to keep in mind… Weighing the pros and cons can help you decide if it’s worth it.
Pros of Working in Retirement
1. Financial Stability
If you’re like most retirees, you may have enough savings and income from your retirement plan to cover the basics, but you’ll also need to consider inflation, long-term care, and rising medical costs.
According to a Gallup News survey, only 24% of Americans are very confident they will have enough money to live in retirement.
Working during retirement means it’s possible to keep your existing savings (and continue earning interest) while living off your extra income. Also, your pension benefits from your former employer are normally not affected unless you plan to return to work for them.
2. Social Security Benefits
If you continue to work during your retirement, you can delay Social Security withdrawals — but only if you’re able to fund your lifestyle without them.
Luckily, monthly benefits increase for every delayed month up until age 70, and the higher resulting payments last throughout your lifetime. For each year you delay your benefits beyond your normal retirement age, up to age 70, your benefit amount increases. If you’re able to wait until age 70, you’d receive 132% of your benefit amount.
There are no earning limitations once you reach your full retirement age. However, you should consult your tax adviser regarding the tax consequences of such work arrangements on your Social Security benefits.
3. Health Insurance Coverage
While small employers (with less than 20 employees) have the right to cancel your health insurance when you turn 65, larger companies with over 20 employees has to offer the same health insurance coverage to those 65 and older as it does to younger employees.
If you want to work part-time in retirement, however, you should check with your employer to see how many hours you need to put in to keep your health insurance. Employers don’t have to continue your coverage if you fall below the minimum number of hours required to qualify for benefits.
If you do work for a small company, they may let you keep your coverage but it would become secondary to Medicare.
4. Mental Health Benefits
Working in retirement is not only about the money. Getting psychologically ready to shed the identity you have built over the years can be unnerving.
A job provides opportunities for social interaction, adds structure to your days and can give you the satisfaction of a job well done. Some people find they get bored without a job. They like having a place to go, meeting with other people and being part of an enterprise that’s bigger than themselves.
While providing additional funds for a better lifestyle, many retirees find value in doing something important enough that someone will pay them to do it.
Cons of Working in Retirement
1. Social Security
While there are benefits, as we mentioned above, there are also some drawbacks and important considerations to consider in the decision-making process.
If you are collecting Social Security but have not reached normal retirement age, (currently 66 but rising to 67) going back to work will come at a cost. For every $2 you earn over the annual limit ($17,640 in 2019), you will lose $1 of benefits.
2. Paying Income Taxes
Some people are surprised to find out that their retirement income is subject to income tax.
If you’ve started Social Security benefits, your earnings may push up your income to a level where your Social Security benefits become taxable. If you’re younger than full retirement age, working may even temporarily lower your Social Security benefit.
Many retirees who work for themselves are hit with a nearly 15% payroll tax. And after age 70, your tax bill may go up again when you’re forced to take distributions from an IRA or 401(k) plan.
3. Lifestyle
Perhaps the most important reason not to keep working is the opportunity to start a new life and make it your own. Many people are tired of arranging their schedules around the work week and not having enough time to pursue the things they really want to do. If you had a stressful, unrewarding or physically tiring job with an unreasonable boss, your stress levels will plummet after you stop working.
Some retirees find that their aches and pains diminish and they lose excess weight after they leave behind the exhausting commute and unreasonable career demands. Sometimes freedom is more important than money.
What’s Next?
Your decision ultimately depends on what you need financially and what you want your retirement to look like. Asking the right questions can help you get some clarity on whether continuing to work really makes sense.
A financial advisor that specializes in retirement income planning can talk through the implications working in retirement. They can also review your portfolio’s asset allocation to make sure your investments align with your risk tolerance and goals.
Whether you’re planning to retire early, or work during your retirement years, the importance of a well-executed retirement plan cannot be underestimated. If you’re looking for fresh new ideas for your retirement income, contact the experts at CKS Summit Group here today.
