Many people associate retirement with not working. But you may want to consider taking on a part-time job in retirement, especially if you're not thrilled with the state of your savings.
But is that the right call? Here are two benefits of working in retirement -- and two drawbacks you should know about.
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Pro No. 1: You'll boost your income
Many people do their best to save well for retirement, only to come up short. If that's your situation, and you're unhappy with your IRA or 401(k) plan balance, then taking on a part-time job could be a nice way to boost your income and avoid having to withdraw from your savings too aggressively to stay afloat.
Pro No. 2: You'll have something to occupy your time with
There's a reason so many seniors wind up struggling with depression. Not having anywhere to be day in, day out can be a tough thing to cope with mentally.
Also, it takes a lot of money to stay occupied in the absence of having a job. And seniors without giant nest eggs often find that they're bored and restless early on in retirement.
If you take a part-time job, it could serve as a nice social outlet and give you something interesting and meaningful to do with your time. In fact, it could pay to work part-time even if you technically don't need the money.
Con No. 1: You'll have to deal with the tax implications
The more you earn, the higher your tax burden might be. And while you can argue that that's a good problem to have, your part-time job could result in your Social Security benefits being taxed.
Taxes on Social Security come into play when seniors' provisional income exceeds a certain threshold. Provisional income is your non-Social Security income plus 50% of your annual benefit.
If that threshold reaches $25,000 and you're single, taxes on Social Security income apply. The same holds true if you're married and have a provisional income of $32,000 or more.
Clearly, these are pretty low thresholds. And so, working even part-time could bump you into a category where you suddenly can't keep all of your Social Security income for yourself.
Con No. 2: You could have some Social Security benefits withheld
If you work and receive Social Security before reaching full retirement age, you may have some benefits withheld if you earn too much. This year, you can earn up to $19,560 without impacting your benefits, but from there, you'll have $1 in Social Security withheld per $2 of income.
If you're reaching full retirement age this year, you can earn up to $51,960 a year without impacting your benefits. So you get a lot more wiggle room in that case. But if your part-time job puts you right over the earnings-test limit, it could end up being a hassle.
What's the right call?
There's lots to be gained by working part-time in retirement, but it's also important to understand how doing so might negatively impact your finances. Remember, though, that if you don't want to deal with taxes on Social Security income and withheld benefits, and you don't have a desperate need for money, you could always work as an unpaid volunteer instead. That way, you'll get to keep busy and, ideally, do something that makes you feel good.
