Working in retirement? Here’s why it’s great…and why it really isn’t | Economic news


Working out in retirement isn’t the traditional route, but it’s gaining popularity as a financial strategy for underfunded seniors. According to a report by the Transamerica Center for Retirement Studies, nearly 60% of employed workers plan to hold at least one part-time job in retirement.

Benefits of working in retirement

There are obvious financial benefits to working in retirement. Continuing to collect a paycheck makes you less dependent on withdrawals from the retirement account to pay the bills. Your money stays invested longer, increasing your wealth potential. Even better, you could continue to fund that retirement account, further increasing the longevity of your savings.

Plus, if working in retirement allows you to delay Social Security, you’ll earn a higher federal retirement benefit later. You can collect Social Security at age 62, but your benefit increases for each month you wait. Deferring your benefits until full retirement age (FRA) can increase your Social Security earnings by up to 42%.

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Disadvantages of working in retirement

Now for the bad news. Before committing to work in retirement, consider three downsides: the necessary compromise on quality of life, the possibility that your plan won’t cure your finances, and the risk of Social Security penalties.

Compromise quality of life. Working consumes time and energy, which affects your family and personal time. This can be difficult to manage, especially if your spouse and circle of friends are enjoying a more traditional, jobless retirement.

There’s also the risk that you’ll skip the “fun” retirement years altogether. It happens when you work until you can’t. Then you go straight to a sedentary life.

Unreliable solution. The quality-of-life trade-off might be temporarily acceptable – if work were a surefire financial solution. Unfortunately, it is not the case. Many retirees report being forced out of the labor market by circumstances beyond their control.

Declining health may be a cause. Changes at work can be another. Corporate restructuring and changing job responsibilities often make older people easy targets for downsizing.

You may regret giving up your free time to work, only to be forced into a downgrading of your lifestyle anyway. After all, a lifestyle downgrade earlier might have allowed for a more traditional retirement from the start.

Potential impact on your Social Security income. If you work while collecting social security before your FRA, you are subject to income limits. Exceed these caps and your Social Security benefits will take a hit.

There are two income limits, and they change every year. In 2022, you cannot earn more than $19,560 in the years before your FRA. For every $2 your income exceeds this limit, your Social Security benefits decrease by $1. The year you reach FRA, you cannot earn more than $51,960. Every $3 you earn above this threshold lowers your Social Security benefit by $1. Later, your monthly benefit will increase to partially compensate for the lost benefits, but there is no guarantee that you will recover all of them.

Work is not the only answer

Working in retirement can shore up your finances, but there are trade-offs. Think carefully about how you want to spend your senior years. If work isn’t at the top of your list, consider other solutions like downsizing or moving to reduce your living expenses.

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