Working in retirement might sound a little like an oxymoron, but it's a reality for many seniors who either can't afford to quit the workforce completely or simply don't want to. It's not inherently good or bad. Like anything, it depends on your personal preferences and financial situation.
Here's a brief overview of some of the key pros and cons of continuing to work during retirement so you can decide if it's a smart move for you.
Three pros of working in retirement
Here are some of the key reasons seniors choose to continue working in retirement.
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1. You won't drain your savings as quickly
Delaying retirement or working part-time through retirement is a popular strategy for those who weren't able to save as much as they'd hoped to during their younger years. The logic is pretty easy to follow: A job gives you a steady stream of income so you don't need to draw down your personal savings as quickly. Your savings will continue to grow, enabling them to stretch further than they would have if you were relying upon them alone.
2. It can help assuage boredom
Sitting at home in retirement isn't for everyone. If you're the kind of person who needs a routine and a sense of 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 may get if you weren't working.
3. You may be able to delay required minimum distributions (RMDs)
Required minimum distributions (RMDs) are mandatory minimum withdrawals you must make from your retirement accounts, except Roth IRAs, beginning the year you turn 72. How much you must withdraw depends on your age and account balance, but you may not have to take out anything from your current workplace retirement plan if you continue working past 72. In that case, you can delay RMDs from that retirement account until the year you quit your job.
You're still free to withdraw funds from your retirement account if you want, but if you're trying to minimize your tax bill and keep your savings invested for longer, the ability to delay RMDs is a huge perk of remaining in the workforce.
Three cons of working in retirement
Weigh the above advantages against these potential drawbacks before deciding whether working in retirement is right for you.
1. It's not a surefire solution for a savings shortfall
Working in retirement is a great way to supplement your personal savings if you're able to do so, but you don't always have control over your employment situation. If your company lets you go or you become injured or ill, you may have to quit the workforce for good, whether you can afford to or not. That's why it's important to prioritize retirement savings while you're young, even if you do plan to continue working so you have a cushion to fall back on if something goes wrong.
2. It takes time away from doing what you enjoy
The most obvious trade-off of working in retirement is that it leaves you fewer hours in the day to do things you enjoy, which is often the main point of retiring. However, this might not be a major problem if you like the work you're doing.
3. You could end up paying Social Security benefit taxes
Working and claiming Social Security at the same time could result in you owing taxes on your Social Security benefits if your combined income -- your adjusted gross income (AGI), any nontaxable interest, and half of your benefits -- is over $25,000 if you're single or $32,000 if you're married.
You may be able to get around this by delaying Social Security benefits until you decide to quit working for good. Delaying benefits will also increase the size of your checks at least until you turn 70, so waiting to sign up could get you more money in the long run. But delaying past 70 will only cost you, and it's not worth doing so just to avoid a slightly higher tax bill.
Striking the right balance
Working in retirement doesn't have to be all or nothing, and you don't have to stay with the company you've worked for up until your retirement. You can switch employers, drop to part time, or even start your own business if that's what appeals to you.
It's ultimately up to you to decide what type of work, if any, fits in best with your retirement goals. Weigh the pros and cons discussed above and don't hesitate to reevaluate your decision if your plans change between now and retirement.
