Thinking about retiring, but still working part time, either at your old job or a new one? Working in retirement is common practice these days, but there are both pros and cons to consider before making a final decision. Weigh the following factors before deciding whether to work in retirement.
The extra income part-time employment provides might be used for living expenses, paying down debt or discretionary spending. You might also use it to forestall or minimize dipping into your retirement accounts, increase the size of your estate, or donate to charity.
If part-time work allows you to delay signing up for Social Security, you can increase your benefits by 8 percent for every year you delay up to the age of 70. Even if you do sign up, additional years of working may improve your earnings history and result in increased benefits.
Social Security benefits are available as early as age 62, but benefits taken before the age of full retirement (65, 66 or 67, depending on when you were born) could be reduced up to 30 percent compared to waiting until full retirement age.
If you are under full retirement age, work part time while taking benefits and earn more than $16,920, Social Security will deduct $1 from your benefit payments for every $2 you earn above that amount. (You will get the money back when you reach full retirement age.)
Expenses usually go down when you retire, including the cost of commuting, parking, work clothing and meals. Working part time could bring some or all those costs back. Before going back to work in retirement, make sure you are not working just to pay the expenses of working.
Extra retirement income could put you in a higher bracket for both income taxes and capital gains taxes. This could be the result of working while receiving Social Security or even result from taking pension distributions on top of part-time work income.
You must begin taking distributions from a Traditional IRA at age 70½. That’s not the case with a Roth IRA, but, in any event, Roth IRA distributions are not subject to taxes, so your bracket would not be affected.
401(k) Plan Access
Working part time could allow you to contribute to an employer-sponsored 401(k) plan. It could even include company matching. Also, any funds inside your employer 401(k) plan will not be subject to required minimum distributions at age 70½ if you are still working for the company.
Some pension plans max out after a certain number of years. Continuing to work after your pension maxes out will not get you additional income.
If your pension pays a percentage of your salary in your final years—and one or more of those years is part time—your pension could be severely reduced. This would not apply if you retire from one company and get part-time work somewhere else.
Retiring before the age of 65 could be expensive if you must get private health insurance. Working part time for enough hours to qualify for employer-provided healthcare at your job is one solution to this problem. Even after you qualify for Medicare, health insurance through an employer can fill in some Medicare gaps, provided it’s the right kind of insurance.
If it’s not, however, having Medicare and employer healthcare could end up costing you more for less coverage. In that case consider putting off signing up for Medicare until you are no longer under an employer policy. (Check with Medicare in the months before you turn 65 to ensure that you don’t run afoul of rules that penalize you for signing up late.)
State of Mind and Body
Being active physically and mentally is better than sitting in front of the TV all day long. Social connections through part-time work help you avoid feeling lonely and allow you to forge new friendships. Perhaps more important, new challenges combined with a more relaxed part-time schedule can be a refreshing change from the stress of your old work life.
Let Your Heart Guide You
Working part time in retirement is only one way to stay active. You could volunteer, spend more time with family and friends, or travel—to name just a few other options. It’s up to you to consider the upside and downside of post-workforce employment and decide. Base your conclusions about which course of action is best on the above factors and what your heart tells you, Remember: While it’s important to be busy, it’s also important to be happy.