Working in Retirement

Should you continue to generate an income even after you’ve retired?

While many people strive to say goodbye to the world of employment when they retire, it could actually make sense to continue working in your retirement years. Today’s world is far different from just a generation ago—starting with the fact that people are living longer. And a longer life means that you’ll need money to keep flowing in so that you can pay for the goods and services you need.

In fact, longevity is often considered one of the biggest threats to your financial security in retirement, because a longer life exposes you to all of the other monetary-related risks for a longer period of time. So having a plan in place to continue generating income is critical.

Why Consider Working in Retirement?

According to the Schroders 2024 U.S. Retirement Survey, among the top concerns facing retired Americans include:

  • Inflation lessening the value of assets
  • Higher than expected healthcare costs
  • A stock market downturn
  • Not knowing how to best generate income and/or draw down assets
  • Outliving savings

Given this myriad of financial concerns, there are many reasons to work—either full- or part-time—in retirement, such as for:

  • Generating extra cash
  • Keeping pace with inflation
  • Maintaining health insurance
  • Increasing savings
  • Maximizing Social Security
    retirement benefits
  • Staying active socially

Generating Extra Cash—Typically, when you are working, you are not out spending money unnecessarily.  In retirement, every day is “Saturday,” which could involve more trips to the store and spending on non-essential items. In some cases, shopping might even provide a way to fight boredom.

With that in mind, working could help you put that extra time to good use, while simultaneously allowing you to generate extra cash that could be used for fun—like taking a vacation or funding a hobby—or for necessary expenses like long-term care insurance coverage for future potential needs. 

Keeping Pace with InflationWith today’s longer life expectancy, it is possible that some people could live for 20 or more years in retirement. That is positive on many levels. However, over time, prices of goods and services tend to go up. So even if you currently generate a comfortable income, chances are that you will need more—possibly much more—in the future just to keep your lifestyle on pace.

In fact, using an average inflation rate of 3.22%, you would need approximately double what you bring in now to stay on track 20 years from now. Therefore, if you currently require $4,000 per month for expenses, in 20 years you will need $8,000. Working in retirement can help you fill in that income “gap,” as well as to set some additional funds aside for the future.

Maintaining Health Insurance Coverage—If you retire before you are eligible for Medicare, working could provide you with employee benefits like health insurance coverage. If you work for a company that does not offer these benefits, the extra money that you earn at your job could go toward paying the premium for an individual policy.

This can be particularly beneficial if your spouse or partner is also not yet eligible for Medicare or their employer doesn’t offer group health insurance coverage that allows you to be enrolled.

Increasing Savings—There are a variety of ways that working in retirement can help you to increase your savings. For instance, your employer could offer a retirement plan like a 401(k). If so, participating in this allows you to grow tax-deferred savings. Many companies also match a percentage of their employees’ retirement plan contributions. This is like receiving “free money.”

If the plan is traditional, you may also be able to deduct your contributions. Further, if you are at or above the age to start taking required minimum distributions (RMDs) from a traditional retirement plan, continuing to work could allow you to delay making these withdrawals (which are typically fully taxable).

If the employer-sponsored retirement plan is a Roth, you could make tax-free withdrawals in the future, which can give you a significant advantage if income tax rates go up in the future as they are expected to.

If you generate income from a job in retirement, you may also be able to make contributions to a Traditional and/or Roth IRA. Similar to employer-sponsored retirement plans, you may obtain a deduction for contributions to a Traditional IRA. Likewise, with an individual Roth IRA, there is no deduction on contributions, but the withdrawals may be tax-free regardless of what the then-current tax rates are.

Maximizing Social Security Retirement Benefits—If you work during retirement, you may also be able to delay taking Social Security. There are several advantages to this. For instance, while Social Security can be claimed as early as age 62, the dollar amount of the benefit is less than it would be if you waited until your full retirement age (FRA).

Depending on your birth year, full retirement age for Social Security retirement benefits is between 65 and 67. The reduced benefit for filing early remains in effect for the rest of your life.

On the other hand, delaying the receipt of your Social Security can increase the dollar amount of your benefit. For every year that you wait to file beyond your full retirement age (until age 70), you essentially get a “raise” of 8%.

So, for example, if your full retirement age is 67 and your monthly Social Security benefit at that time is $2,000, waiting until age 68 can bump up the amount to $2,160 per month, and waiting until age 70 to claim would increase it to a monthly benefit of over $2,519. This increased benefit amount also continues throughout your lifetime.

It is important to note, though, that if you are collecting Social Security and have not yet reached your full retirement age, generating income through employment and other sources could make some of your benefits subject to tax.

Staying Active Socially—Working during retirement can provide you with a way to spend your time productively and socially. For instance, once you retire, it may be difficult to make new connections. Thus taking on a full- or part-time job may help you foster new social connections, as well as to find purpose. Studies have also shown that working in retirement can help to keep your mind sharp.

Should You Work in Retirement?

While working in retirement can provide financial benefits, doing so may not be right for everyone. So in order to determine what is best for you and your specific needs, it is best to discuss your situation with a financial planning professional who can walk you through various scenarios and guide you in the right direction.

A financial planner who is also familiar with the legal issues of the LGBTQ community can potentially better understand your situation and assist you in updating accordingly in the event of tax, legal, and other types of economic changes.

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Grace S. Yung

Grace S. Yung, CFP, is a certified financial planner practitioner with experience in helping domestic partners plan their finances since 1994. She is a principal at Midtown Financial LLC in Houston and was recognized as a “Five-Star Wealth Manager” in the September 2017 issue of Texas Monthly.
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