Working in Retirement

Once retired, the idea of re-entering the workforce may cross your mind from time to time. If so, you’re certainly not alone in your contemplation. In fact, according to the 2012 Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI), 70 percent of people consider working for pay once retired, however, a much lower portion, about 27 percent of people surveyed, actually do.

The motivation for many returning to work for pay is largely positive. Many cite a desire to stay involved, remain active and work simply for enjoyment. The EBRI survey found that for many people, work is fulfilling and a big part of their life. 

Still, many retired seniors are also motivated to return to work by one of their biggest fears - running out of money. The need for additional income covered many areas: wanting money to buy extras, declining value of their savings or investments, needing money to make ends meet, and keeping health insurance or other benefits. 

Of course, the decision to keep working in retirement is very personal and depends mainly on your financial needs. To help you make the best decision, here are some pros and cons when considering working after the "full retirement age," which ranges between 66 for people born between 1943 and 1954, and 67 for those born 1960 and later.

Social Security Benefits 

Pros: If you work during retirement, you'll earn more over time, which will increase the amount of your Social Security benefits. Also, the longer you delay collecting Social Security, the higher your benefits. So your benefits will be higher if you start collecting Social Security at age 70 than if you started collecting at age 65. 

Cons: However, if you do keep working and boost your income above a certain amount, you may be subject to income taxes on your Social Security benefits.

Investments and income

Pros: Many people worry that they won't have enough money to last throughout their retirement. Staying in the workforce will allow you to keep contributing to your retirement plan. You have a chance to boost the value of your investments over time through dollar cost averaging (automatically investing a certain amount of money each month into your chosen investments).

Cons: If you have a traditional IRA, you must take required minimum distributions at age 70.5 years. These withdrawals count as income, so this could mean more of your Social Security benefits would be taxed.

Career and lifestyle

Pros: If you're passionate about your career, you might not want to stop working. Your job provides meaning in your life and keeps you mentally challenged. It also allows you to stay in touch with people that you've known for many years. If you keep working, you don't have to change your lifestyle or cut spending on items or activities that you enjoy.

Cons: You'll have less leisure time and flexibility if you keep working full time. That means less time for golf, traveling the world, or pursuing other hobbies.

Additional considerations

Another benefit of working in retirement is that you'll continue to get health insurance through your employer. However, keep in mind that part-time employees (working under 30 hours per week) usually don't get health insurance. And even if you do keep working at your retirement age and get health insurance from an employer, you can sign up for Medicare at age 65. 

What if you want to work, but not full time? You may decide to stay in your field of expertise but switch to a part-time position. You have plenty of options and should plan ahead with your employer. 

Retirement can be the time to try something new like taking classes at a community college or with an online school to get training and learn skills in a field that interests you, or starting your own business. In fact, many retirees are pursuing "encore careers" that are meaningful and provide a sense of purpose. Check Encore and AARP for more information about finding a new career in retirement.

Some retirees might want a job that involves a hobby that they enjoy or volunteer within the community such as the library, soup kitchen or food banks, hospitals or other local centers looking for help.

What to do next

  • Before you make any decisions, check your financial situation - your investments, retirement plan, and how much you'll receive in Social Security benefits.
  • If deciding to re-enter the workforce, consider what kind of work will fit your lifestyle and make you happy.
  • Given the emotional nature of this decision, work with an investment advisor who can offer objective advice and help you find the answers too.
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