The Many Benefits of Working During Retirement
Are you considering working during retirement? If so, you’re not alone. A recent study by the Pew Research Center found that about 9 million people age 65 and over are working full or part-time. This number is considerably higher than years past, and it continues to grow.
Some people deplore the idea of working after they’ve retired. It’s just not what they pictured. Many people are forced back to work because their retirement income, including Social Security, just isn’t enough for them to live on. These individuals may not have had a retirement plan where they worked, and they didn’t adequately prepare for retirement on their own. And some people love to work and are happy to continue being part of the workforce.
Social Security Takes a Bite
Regardless of whether you choose to work during your retirement or have to out of necessity, the effect that working and earning has on your Social Security check each month must be taken into account. Let’s take a look at that before we examine the benefits of continuing to work during retirement.
According to the Social Security Administration, If you are under full retirement age for the entire year, they deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2020, that limit is $18,240.
In the year you reach full retirement age, they deduct $1 in benefits for every $3 you earn above a different limit. In 2020, this limit on your earnings is $48,600.
Beginning with the month you reach full retirement age, your earnings no longer reduce your benefits, no matter how much you earn.
If you have a well-paying job after you return to work, the effects of this penalty on your income can be substantial. In effect, it is a 50% tax on your earnings if you are under full retirement age. You earn $2, and you give back $1. That’s 50% of what you earned. And that doesn’t take into account the regular income tax and Social Security tax you also have to pay on those earnings.
The longer you wait to start receiving Social Security benefit payments, the bigger those monthly payments you receive will be. Continuing to work as much or as little as you wish during retirement and waiting until you reach full retirement age to start collecting Social Security is the ideal scenario.
The Benefits of Continuing to Work
- You increase your annual income. Though your Social Security check may be smaller because you have an income, the good news is that you still have additional income. For many people, this makes a big difference in their lifestyle. It gives them funds to travel, dine out, spoil grandchildren, and a host of other uses. For many people, this is a definite motivator to return to work.
If the reduction in benefits doesn’t deter you from working, you can benefit in a number of ways by continuing to be gainfully employed. Here are five of them.
- You don’t deplete your savings (as quickly). Just about all of us have a finite amount of savings we’ve been able to accumulate over the years. And the longer we can keep it, the longer it can earn interest and be there for us in our latter years. Working while you’re retired doesn’t mean you can’t draw your pension, but it may mean that you don’t have to raid your 401(k) plan from your old employer, or the IRA you established years ago and have been contributing to regularly. Statistically, there’s a good chance you’ll be living into your 80s, or even your 90s. The longer you can hold off from taking money out of savings, the better for you as you grow older.
- You can delay receiving Social Security benefits. There is as much as a 30% reduction in benefits if you retire at age 62 than if you wait until full retirement age. This can make a massive difference in the amount of Social Security benefits you’ll receive during your lifetime, as well as the amount of income you’ll leave to a surviving spouse. The longer you can wait until you start receiving checks – the better.
- You may be eligible for health insurance benefits. Out-of-pocket costs from Medicare can add up quickly. The benefits are not known for being as comprehensive as private health insurance. Then, there’s the cost of Medicare Supplement Insurance if you decide to buy a policy to help you pay those out-of-pocket expenses. Getting good health insurance through a new employer is a big benefit of continuing to work.
- You continue to be socially active. Many retirees tend to isolate themselves after they’ve retired, which has been shown to shorten our lifespans. Being socially active is good for us mentally and keeps us connected with others. Many retirees that don’t continue working cite loneliness as their number one reason for missing their old workplace. Being with co-workers benefits many people as much as their paycheck.
These are some of the benefits of continuing to work after you’ve retired. You may go to work for a new employer or decide to go to work for yourself, which can be very rewarding after many years as an employee. Whatever you decide, enjoy this new stage of life. You’ve earned it.