Potential Impacts of Working in Retirement

Key Takeaways:

  • Working during retirement could help you stay engaged and active.
  • The additional income can help you cushion your retirement savings and may let you delay when you start receiving your Social Security benefit. The later you begin taking your Social Security benefit, up to age 70, the greater your benefit will be.
  • But be aware how working during retirement might affect your taxes, Social Security benefits, pension and Medicare premiums.

Despite the massive economic expansion and bull market we have been experiencing since 2009, the number of American retirees working into their 60s and 70s has increased. According to a report published by the U.S. Bureau of Labor Statistics, 9.2 million Americans 65 and older were working in 2016 compared to 5.4 million in 2006. The Bureau’s projections for 2026: A whopping 14.6 million American retirees will be working to supplement their retirement income.

If you are retired, nearing retirement or in the planning stages, it is worth considering whether you plan to work to supplement your retirement income. However, you may not fully realize what you want until you have taken the plunge into retirement. For now, as you continue to develop your retirement plan, it makes sense to consider all your options and their potential impacts.

The Potential Benefits of Working in Retirement

With careful planning, you should be able to determine whether you might need additional income in retirement. By carefully assessing your projected expenses in retirement and your current savings and projected retirement benefits, you can get a better sense of whether you are on track.

No one likes to be caught by surprise, so better to make your projections now. Below, we explore the potential financial, social and health benefits of working in retirement.

Potential Financial Benefits

  • You can continue saving for retirement. Working through retirement allows you to save more for when you decide to finally stop working altogether.
  • You can increase your Social Security benefits. If you do not begin taking Social Security during early retirement, your benefits may continue to increase until age 70. For more details on the potential impact of delaying Social Security, read this informational document from the Social Security Administration.
  • Your employer may provide health insurance. Rising healthcare costs have historically outpaced the rate of inflation. As erosive as inflation can be on your purchasing power, the trend in health care costs is even sharper. By working during retirement, you might not have to dip into your savings to cover these costs, as long as your employer provides health insurance.
  • Your employer may let you contribute to your 401(k). Your capacity to continue making contributions to your 401(k) can be a plus, especially if your employer matches your contributions. Try to max out your contributions if possible. This will increase your available retirement savings for when you are ready to make withdrawals.

Potential Social and Health Benefits

  • You can stay physically and socially active.Depending on the kind of work you do, the work environment can be socially and physically engaging.
  • You can fill your time in a meaningful way. Retiring into a work-free lifestyle might feel like a holiday at first, but over time might feel empty. Going to work, even part time, can give you a reason to get up in the morning, a sense of accomplishment and meaningful engagement.
  • You can use your skills to learn something new. If your work environment allows you to exercise and develop your skills, then work might provide you with continuing personal growth. This may positively impact your overall physical, cognitive and social health. 
  • You may have the capacity to choose the work you take on. Having reached the heights of your work experience and expertise, you may be able to choose work you feel is rewarding, beneficial and meaningful to you.

Potential Caveats to Creating Retirement Income

  • You may be required to pay taxes on your wages. You’ll likely need to pay federal and state income tax on the wages you earn as you continue working.
  • If you are taking Social Security benefits before full retirement age, your benefits may be reduced while working. For 2019 the income limit is $17,640. If you earn more than that amount, $1 will be deducted from your Social Security benefit payment for every $2 you earn above the annual limit. Different rules and a higher limit apply for the year in which you reach full retirement age. For more details see the social security website.
  • Your Social Security benefits may not be reduced if you are working at full retirement age. If you work at or beyond full retirement age your Social Security benefit will not be reduced. However, you might still want to consider not starting your Social Security benefits until you turn 70.
  • Creating retirement income may increase your Medicare premiums. The standard monthly premium for medical insurance (part B) may increase depending on your income. Your monthly premium for Medicare prescription drug coverage (part D) will also vary, with higher-income consumers paying more. You can find a quick summary and more detailed information on Medicare’s cost-at-a-glance page.
  • If you have a pension, returning to work may or may not affect your pension benefit. If you are working for the same employer offering the pension, check with your employer to see if your working status reduces or forfeits your right to collect a pension. If you are receiving income from another employer, you may still be able to receive your pension from a previous employer, but be sure to verify.

Working part- or full-time during retirement can help you generate valuable income. You might be able to use this income to bolster your retirement savings or simply to cover expenses until you opt to start receiving your Social Security benefit. Employment may also provide health insurance and let you contribute to an employer-sponsored 401(k) plan.

Figuring out whether or not to work in retirement is not solely an economic decision. You might also want to consider how you’d like to spend your time, how you’ll stay active and connected, and what you’d like to learn. Employment may or may not help you meet those lifestyle objectives.

Regardless of what you decide, carefully considering both lifestyle and financial factors can help you realize a retirement that will work for you. If you’d like assistance planning your retirement, Fisher Investments may be able to help. Give us a call today or download one of our guides to find out more.

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