Pros & Cons of Working After Retirement

February 01, 2022 · 7 minute read

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Pros & Cons of Working After Retirement

It’s easy to assume that retirees are happy to leave the workforce to pursue more leisurely activities when it comes time to retire, however a growing number of Americans are opting to incorporate work into their golden years.

Nearly half of American seniors plan on working part time or picking up a side job during retirement, according to the American Advisors Group. You may wonder what the pros and cons are. This article will outline the advantages and disadvantages of working after retirement.

Is It Possible to Work After Retirement?

Yes! According to recent data from the Administration for Community Living, roughly 20% of Americans 65 years of age or older are either actively working or seeking work. While some of them are still in their full-time jobs, many others have taken on a different kind of work or scaled back their hours after leaving a long time career.

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Benefits of Working After Retirement

From extra income to providing something to do, working after retirement has many benefits.

Here are a few benefits to keep in mind.

Working After Retirement May Provide Extra Income

Retirees might start looking for a new job after retirement because they don’t have enough money to cover their living expenses in retirement. This might happen if a retiree didn’t save enough for retirement, if their cost of living increases, or if they face an unexpected financial emergency or medical setback.

According to recent data from the Insured Retirement Institute, the vast majority of baby boomers are not prepared for retirement, with 45% of Baby Boomers having no savings at all. For many, working during retirement is a way to offset some of the financial stress of living on a budget—especially in areas with a high cost of living.

Recommended: Cost of Living by State (2022)

On the other hand, jobs after retirement can also provide extra “fun money” that allows retirees to check off some of those bucket list items like a vacation with family.

Plus, if a retiree continues to work in a traditional job after retirement, they will continue to pay into Social Security, which may increase the value of the benefits they receive later. They may also be able to put off tapping into their retirement benefit until their full retirement age or later, which can also make them more valuable.

Working After Retirement Can Ease Boredom

Taking on work after retiring can combat boredom after turning in the office keycard. While many people are counting down the years to retirement, some may be caught off guard when they are left with decades of free time.

Retirees may be used to going to a job that provides mental stimulation. A change in that routine could result in boredom when a retiree is suddenly faced with filling long days with no plans.

Going back to work after retirement may help to ease some boredom. Some retirees might choose to return to an old passion, pick up a new job to learn new skills, or even take on a job focused on charity or giving back. Working part-time in retirement might give a retiree the excitement of a job, combined with the benefits of a more flexible schedule.

Working After Retirement Helps With Social Engagement

In addition to giving structure to every day and helping keep boredom at bay, working in retirement might help a retiree stay social.

One unforeseen side effect of retirement and leaving the workforce may be realizing that many friends are also colleagues. After retirement, it might be hard to make new connections. Taking on a job after retirement, even working part-time in retirement, may help foster new social connections.

Downsides to Working After Retirement

Before a retiree decides to take on a job after retirement, it is vital to consider any possible downsides. While taking a job after retirement comes with many benefits, there are also some drawbacks to taking that side gig.

Working in Retirement May Impact Social Security Benefits

First, it is important to know that working in retirement could impact retirement benefits. For example, Medicare eligibility and Social Security benefits may both be affected by income earned at a post-retirement job. Some retirees are still eligible for Social Security even when they’re working, but it depends on their age and income.

Although eligible workers can technically begin to collect Social Security benefits anytime between ages 62 and 70, retirement benefits may be reduced by a percentage until the retiree reaches their “full retirement age.”

Full retirement age for people born in 1960 or later is 67. If you take Social Security before you’ve reached that age, the Social Security Administration could reduce your benefits while you’re working.

For 2021, if you are receiving Social Security payments before you’ve reached full retirement age and your income exceeds $18,960, the Social Security Administration will reduce your benefits by $1 for every $2 earned over the annual income limit. In the year your reach full retirement age (before your actual retirement age birthday), $1 of benefits is deducted for every $3 made above the annual income limit of $50,520.

The good news is that once you reach full retirement age, you can work without facing a reduction in Social Security benefits. These restrictions and limits change annually, so you might want to check with the Social Security Administration to determine how taking on work in retirement could affect your benefits.

Working in Retirement May Change Taxes

In addition to changes to benefits, working in retirement could change the amount you owe in taxes. Social Security benefits might be taxed if a retiree has a combined income over a certain threshold. This includes income, nontaxable interest, and up to 85% of Social Security benefits.

Suppose a retiree files their taxes individually, and their combined income—adjusted gross income plus nontaxable interest and up to half of their Social Security benefit—is between $25,000 and $34,000. In that case, they could be taxed on up to 50% of their Social Security income.

If a combined income is more than $34,000 thanks to working after retirement, they might be taxed on up to 85% of their Social Security benefits.

Of course, workers taking jobs after retirement will also have to pay normal state and federal income taxes on the income earned in their new, post-retirement jobs. They will also have to pay Social Security and Medicare taxes.

Working in Retirement Could Mean Less Free Time

One of the most appealing things about retiring is the ability to make your own schedule, or to not have a schedule at all. Depending on the type of work that you do in retirement, you may have to sacrifice some of that freedom to meet the demand of even a part-time job.

Planning for Retirement

Whether or not you plan to work after retirement, starting to plan for your retirement early can make it easier to meet your retirement goals. Proactive planning can give you the flexibility to choose whether or not to work in retirement based on your desires rather than your need for money.

Planning for retirement doesn’t need to be stressful. A great way to start is by using an online retirement calculator to help you nail down specific numbers to work toward. Once you’ve got your number, you’ll want to decide what type of retirement account you want to use to save.

Recommended: Understanding the Different Types of Retirement Plans

Utilizing an Employer-Sponsored 401(k)

One of the most popular and tax-efficient ways to save for retirement is by putting money into a 401(k), an employer-sponsored retirement plan that might help reduce the amount of saved money that ends up being taxable.

Opening an IRA

Workers may also set up an online IRA, which is a different type of retirement account. This account allows workers to save up to $6,000 per year, pre-tax ($7,000 for those age 50 or older).

Recommended: What is an IRA Account?

Considering an Investment Account

Workers may also consider using a brokerage account to accumulate funds for retirement. While an investment account doesn’t have the same tax-protections as a retirement account, it could be a good option for those who are looking to save more than the annual limit allowed in a retirement account.

Recommended: 3 Steps to Starting a Retirement Fund

The Takeaway

While it is possible–and even desirable in many cases–to work in retirement, planning well for retirement can make working a choice rather than a financial necessity. Retirement planning means figuring how much money you need to save for retirement, and choosing the right type of account to put those funds.

A 401(k) account through work is a great place to start. If, however, you don’t have access to a workplace retirement plan (or you’re already maxing it out), you can use the SoFi Invest® brokerage platform to open an IRA or an investment account to build a portfolio that includes stocks, and exchange-traded funds.

Find out how SoFi Invest® could work for you.

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.


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