Working in retirement may sound a bit like an oxymoron, but it is a reality for many seniors who cannot afford to leave the job market completely or simply do not want to. It is not inherently good or bad. Like everything, it depends on your personal preferences and financial situation.
Here is a brief overview of some of the main pros and cons of continuing to work during retirement so that you can decide whether it is a smart move for you.
Three professionals working in retirement
Here are some of the main reasons why older people choose to continue working in retirement.
Image source: Getty Images.
1. You are not going to drain your savings so quickly
Postponing retirement or working part-time until retirement is a popular strategy for those who were unable to save as much as they hoped for as a youth. The logic is very easy to follow: a job provides a steady stream of income, so you don’t have to withdraw your personal savings so quickly. Your savings will continue to grow, allowing them to expand more than if you were counting on them alone.
2. It can help to ease boredom
Sitting at home in retirement is not for everyone. If you are the type of person who needs a routine and a purpose to be happy, working in retirement can provide that for you. Depending on what you choose to do, it can also provide more social interaction than you could get if you weren’t working.
3. You can delay the required minimum distributions (RMDs)
The minimum required distributions (RMDs) are mandatory minimum withdrawals that you must make from your retirement accounts, except for Roth IRAs, starting the year you turn 72. How much you should withdraw depends on your age and account balance, but you may not need to withdraw anything from your current workplace retirement plan if you continue to work past 72. In that case, you can delay the RMDs of that account. retirement until the year you left your job.
You are still free to withdraw funds from your retirement account if you wish, but if you are trying to minimize your tax bill and keep your savings invested longer, the ability to delay RMDs is a great advantage of staying in the workforce.
Three cons of working in retirement
Weigh the above advantages against these potential disadvantages before deciding whether to work in retirement is right for you.
1. Not an infallible solution to an economy deficit
Working in retirement is a great way to supplement your personal savings, if you can, but you don’t always have control over your employment situation. If your company lets you go or if you get hurt or sick, you may have to leave the job market forever, whether you have financial means or not. That is why it is important to prioritize savings for retirement while you are young, even if you plan to continue working, so that you have a pillow to lean on if something goes wrong.
2. It takes time away from doing what you like
The most obvious disadvantage of working in retirement is that you leave less hours in the day to do the things you enjoy, which is often the main goal of retirement. However, this may not be much of a problem if you like the work you are doing.
3. You may end up paying taxes on Social Security benefits
Working and claiming Social Security at the same time can result in taxes due on your Social Security benefits if your combined income – your adjusted gross income (AGI), any non-taxable interest and half of your benefits – exceeds $ 25,000 if you are single or $ 32,000 if you are married.
You can work around this by delaying Social Security benefits until you decide to stop working forever. Delaying benefits will also increase the size of your checks at least until you’re 70, so waiting to sign up can earn you more money in the long run. But delaying past 70 will only be expensive, and it is not worth doing just to avoid a slightly higher tax.
Reaching the right balance
Working in retirement doesn’t have to be all or nothing, and you don’t have to stay in the company you worked for until you retire. You can change employers, work part-time, or even start your own business, if that’s what you like.
Ultimately, it is up to you to decide what type of job, if any, best fits your retirement goals. Weigh the pros and cons discussed above and don’t hesitate to reevaluate your decision if your plans change until retirement.