7 Things to Keep in Mind if You Plan to Work in Retirement

According to a recent survey by the Transamerica Center for Retirement Studies, 57% of workers plan to work after they retire. Reasons cited for working after retirement include:

  • To be active
  • Wanting the income
  • Keeping brain alert
  • Have a sense of purpose
  • Concern that Social Security will be less than expected
  • Can’t afford to retire
  • Need health benefits

There are many benefits to working in retirement including economic, social, and psychological. However, if you’re thinking you might want to work after you retire, here are seven things to keep in mind as you plan for the next phase of your life.

Working after retirement cuts into your free time and flexibility.

One of the primary benefits of retirement is you gain free time and have more flexibility in your schedule. Working after you retire cuts into your free time and limits your flexibility.

Working in retirement may add stress to your life and strain your relationships. Working in retirement, even part-time, adds stress to your life. If you work for a company, you’ll have a boss, co-workers, commute time, and performance expectations. Co-workers may even treat you differently because you’re older. If you start your own business or continue working in a business you started before you retired, there are the normal self-employment challenges. Don’t kid yourself. “Work” is called work and not “play” for a reason.

Working in retirement may also strain your relationships if your partner is not working and you are not. If your friends are retired and you’re working, you may not be able to have as much time with them as you’d like. For example, if your friends want to go out and recreate and you’re working, you may not be able to join them.

Social Security benefits may be affected. According to the Social Security website, if you’re receiving Social Security benefits and are younger than your full retirement age, your benefits may be reduced if you earn income about certain limits. The limit is $18,860 for 2021. Benefits are reduced $1 for every $2 you make above this limit. There is a different limit for the year you retire. See the website for details.

You eventually get the money back later, but if you were counting on Social Security being a certain amount, you could be surprised.

You can earn as much as you’d like after you reach your full retirement age with no impact on your Social Security benefits.

Required Minimum Distributions (RMD) continue even if you’re working. You’re required to take money out of IRA’s at 72 if you’re working or not. RMDs from a 401(k) plan may be delayed if you’re still working.

However, you can continue to save. If you’re working after you retire, you can save up to $7,000 annually in an IRA. If your employer has a savings plan like a 401(k) plan, you may be able to save in the plan and get a company match if you meet the plans eligibility benefits.

Taxes. Extra earnings in retirement are taxed according to state and Federal income tax rules. Social Security benefits may also be taxable depending on how much you make in combined income.

Combined income is your adjusted gross income, plus non-taxable interest, plus ½ of your Social Security benefits.

The SSA website cites these rules:

  • If you file your tax return as an individual and your combined income is between $25,000 and $34,000, you may have to pay taxes on up to 50% of your benefits. You’ll pay taxes on up to 85% of your benefits if you earn more than $34,000.
  • If you file a joint return, the limits are $32,000–$44,000 for up to 50% of your benefits being taxable and above $44,000 in earnings means up to 85% of your Social Security benefits will be taxable.

Bottom line: make sure working in retirement pencils out. Hidden costs in working after retirement may chip away at the economic value of working. You may have costs connected to commuting, parking, clothing, dry cleaning, and meals. And, of course, remember your income is taxed. Add up all the costs –financial and otherwise — associated with working after retirement and compare it to the benefits (economic, social, and psychological.) You want to be sure the benefits outweigh the negatives before you commit.