You’ve planned, saved, and waited for retirement for years. When the time to stop working finally arrives, what will you do? You may be surprised to learn that many people go back to work.
People make this choice for a few different reasons. Some need the money, others crave social interaction, and some miss working for a goal or cause about which they’re passionate. Whether your motivation falls into one of these categories or a different one, following are questions to ask yourself before deciding to start working again after you retire.
Do you need the money?
Many Americans lack the necessary savings to maintain the same lifestyle in retirement that they had when employed. Others underestimate how long they’ll live after retirement and don’t have enough saved to last the rest of their lives. One obvious benefit of going back to work is earned income.
Given the current inflation rate and rising interest rates, it makes sense that many retirees return to work because they need money. But adding income doesn’t just affect your bank account and spending capacity. It also has ramifications on your Social Security payments, health benefits, and pension.
How could unretiring affect your Social Security benefits?
If you’ve opted to start collecting Social Security before your full retirement age there is a limit on how much you can earn without having your benefits reduced.
If you’re under full retirement age in 2023, the annual earnings limit is $21,240. Starting with the month you reach full retirement age, there is no limit on how much you can earn and still receive your benefits.
If the income you earn from a job enables to you to delay starting Social Security you’ll benefit even more, since the longer you delay (up to age 70) the higher your monthly payments will be.
How could unretiring impact your Medicare premiums?
If you've enrolled in Medicare, earning additional income could push you into a higher tax bracket and, therefore, increase your Medicare premiums.
If you’re able to get medical coverage through your job, that might provide a more affordable option. You can then drop your Medicare coverage while you’re working and reenroll later, although that comes with rules and deadlines you’ll need to be aware of. The bottom line: Do your research on how working after retirement will affect your health benefits. Speak to a Medicare representative and/or benefits advisor at your company.
Will you forfeit pension benefits?
If you work for someone other than your original employer, you’ll still receive your pension benefit from that employer. If, however, you continue to work past your retirement date for the same employer or you retire and then return to work for that employer, your pension may be affected in various ways.
Different plans have different stipulations regarding working and receiving your pension. It’s possible you can still receive your pension even if you continue to work. Other plans might suspend your pension while you work but will increase your payment when benefits resume to make up for the suspension. There are some plans in which you might forfeit the pension benefits during the time you’re working. Meet with your company’s plan administrator to find out what the rules are so you don’t unexpectedly lose benefits.
What other factors should you consider?
Do you miss the social interactions that come with a job, of the mental stimulation from solving problems and working toward set goals? These, too, may be reasons to unretire even if you don’t need the money,
If you’re hesitant about returning full-time, look for a part-time job or one offering flexible schedules. Or even considering consulting or freelancing. That way you won’t have to give up time you’d also like to devote during your retirement to other activities, such as a hobby or volunteer work.
And don’t feel trapped by a job that’s not right for you. If you’ve been out of the workforce for a while you may have forgotten the stress or demands of working. If you feel overwhelmed by the psychological and physical impacts of your new job, don’t feel obligated to stick with it. There may be other, less stressful opportunities available.
Is unretiring right for you?
“Unretiring” can be both financially and professional rewarding for many retirees. But it might not be right for you. Before you accept a new job, carefully weigh the pros and cons to make an informed decision that aligns with the retirement lifestyle you seek.
If you’re uncertain how going back to work could impact you from a Social Security, Medicare or tax perspective, speak with your tax professional or financial advisor.
Joelle Spear is a financial advisor and Partner located at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. She offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. She can be reached at 508.598.1082 or firstname.lastname@example.org
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