Most workers dream of a day when they're no longer required to hold down a job, but retirement isn't always what it's assumed it will be. For a myriad of reasons, many people choose to continue working after they've reached retirement age, and others are considering it.
If you're nearing such a decision or mulling a return to the workforce after an age-based hiatus, here's a rundown of some key upsides and downsides to rekindling your career, or stepping into a new one.
Three pros of working in retirement
1. You're earning money
If you're working, you're earning money. This is true whether you need it to pay bills or simply want it to fund fun lifestyle purchases.
2. You may be able to put money into an IRA
For years, nobody above the age of 70 1/2 was allowed to make contributions to most types of individual retirement accounts, or IRAs. In fact, IRA holders were legally required to start taking money out of the account no later than April of the year after turning 70 1/2.
These rules have changed somewhat. Thanks to the SECURE (Setting Every Community Up for Retirement Enhancement) Act passed in 2019, if you turned 70 by July 1, 2019, or later, you're not required to make these minimum withdrawals until you turn 72. Moreover, there's now no age limit on contributing to a traditional or a Roth IRA, and -- if you're fortunate enough to be in such a position and would like to leave it to an heir -- there's no requirement to ever withdraw any money from a Roth IRA while you're alive.
While certainly more flexible than they've been in the past, the rules regarding IRA contributions and withdrawals are still complicated. Be sure to review the IRS's updated information or speak with a qualified professional about your personal situation before making a decision.
3. You're remaining active
In some ways, the most important benefit to working in retirement is the fact you're remaining active and contributing something to your part of the world.
What this means is a little different for everybody. Perhaps you thrive on encouraging people around you, or maybe you've got some wisdom to pass along to less-experienced coworkers. It's possible an employer just needs your experience. Whatever the case, know that you can miss something you've done for years when you're suddenly forced to stop doing it.
Two cons of working in retirement
1. You're missing out on "you" time
Just because you can miss something you did for the better part of your adult life doesn't inherently mean you will. For some people, leaving the world of work and being able to devote your time to your family and hobbies is an entirely welcome change. If one of these interests is travel, in fact, traditional employment may be nearly impossible. Self-employment or contract work may be a better option if you're going to need flexibility, although it still consumes precious time.
2. You might reduce your monthly Social Security payments
If you've already started collecting Social Security payments, earning money now could potentially reduce the size of your monthly check.
Whether this will impact you depends on how much you're earning in work-based wages in retirement and your age. For 2022, if you've not yet reached your full retirement age, the Social Security Administration reduces your annual benefit by $1 for every $2 you earn over $19,650 for the year. If you're already at your full retirement age, the SSA doesn't penalize you at all for earning money at a job.
Great, but what's full retirement age? That's the tricky part. It changes depending on when you were born. If you were born between 1943 and 1954, your full retirement age is 66. If you were born after 1960, your full retirement age is 67. Anywhere in between those years requires a bit of prorated math from the Social Security Administration.
Also note there's a special formula used to figure out your correct benefits amount the same year in which you retire, though this calculation neither imposes a significant penalty nor provides a significant windfall.
You can (and should) contact the Social Security Administration to get the specifics on your current or projected payments, and how working might reduce your benefits.
Don't sweat it
If you're facing this decision now or will be facing it soon, weigh these pros and cons carefully.
On the flip side, don't stress yourself too much about it. Nothing about these pros and cons has to be permanent, giving you the option of changing your mind about post-retirement employment without suffering any major financial penalty. At worst, it might just mean a year's worth of inconvenience.