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2 Pros and 2 Cons of Working in Retirement

By Catherine Brock – Dec 17, 2021 at 9:18AM

Key Points

  • Continuing to work can reduce the chances you'll deplete your savings before you die.
  • Your paycheck could reduce your Social Security benefit, depending on your age.
  • Your quality of life may be the priority if your health is in decline.

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There are financial and quality-of-life impacts to consider.

Working in retirement used to be an oxymoron, but times have changed. Today, more seniors are pushing past traditional retirement timelines to keep earning their paychecks. The Bureau of Labor Statistics expects the trend to continue and projects the percentage of workers 65 and older will grow faster than any other age group through 2024.

There are perks to working in retirement. Two significant perks are the ongoing income and work-sponsored healthcare. But even with the financial benefits, an extended career isn't for everyone.

To help you envision how work may (or may not) fit into your retirement plan, here's a look at two pros and two cons to working in retirement.

Pro: Working earns a paycheck and then some

The financial advantages of continuing to work are significant. When you keep working, you keep earning. That gives you extra time to pad your 401(k) or IRA. You also reduce the number of years you'll be siphoning distributions out of your retirement savings. Continuing to earn a paycheck should reduce the risk of running out of money before you die.

Smiling senior sits on the floor, cross-legged, at home.

Image source: Getty Images.

If your employer has a good healthcare plan, keeping your job longer could also save you thousands in out-of-pocket medical costs.

And then there's the impact to your Social Security benefit. The later you file your Social Security application, the higher your benefit can be. Of course, you give up income upfront for that higher benefit later, but you may not care if you're still earning a full paycheck.

Pro: Working fends off boredom

A study from Merrill Lynch and research company Age Wave reports that many retirees feel anxious or bored, particularly in the first two years of retirement. Some 35% of seniors in the study admitted that structuring their time in retirement was harder than during their working years.

Work does provide structure, along with social interaction, cognitive stimulation, and, often, a sense of purpose. All these can contribute to a greater sense of contentment, while warding off cognitive decline.

Of course, these benefits may not be available if your current job is stressful or overly demanding. In that case, you might think about the possibility of transitioning into a role that would be fulfilling.

Con: Your paycheck could affect your Social Security

You can work and collect Social Security at the same time, but there is a caveat. Before you reach Full Retirement Age (FRA), Social Security is subject to income limits. If you exceed those limits, you'll see a hit to your retirement benefit. You can learn more about your FRA here.

The penalty is calculated in two parts, depending on your age.

  1. If you are under FRA for the whole year, your benefit is reduced by $1 for every $2 you earn above the annual limit. In 2022, the annual limit is $19,560.
  2. In the year you reach FRA, your benefit is reduced by $1 for every $3 above a higher limit. The formula only counts income earned in the months before you reach FRA. In 2022, that higher limit is $51,960.

If you plan to keep working, you can avoid these benefit reductions by waiting until FRA to claim your Social Security.

Con: Working takes time away from other goals

Perhaps the biggest disadvantage of working in retirement is the lack of freedom to choose how you spend your time. The common vision of retirement involves carefree days, quality time with family and friends, and the pursuit of hobbies. Add work into that vision and the dynamic can feel very different.

This is a disadvantage you can evaluate relative to your health. If you are in good health, delaying those carefree days for a few years may be a reasonable compromise. Continuing to work will ultimately provide more funding to do the things you want, after all.

On the other hand, if your health is poor, you might prioritize your quality of life today while you are healthy enough to enjoy checking off your bucket list activities.

Finances vs. life quality

You can group the pros and cons of working in retirement into two categories: finances vs. life quality. On the surface, the two appear to be in opposition. Working in retirement is good for your financial health, for example, but it can be bad for your quality of life.

The middle ground might involve a different type of job than what you have today. A job you enjoy, that's not all-consuming, may provide the right mix of perks -- income, sense of purpose, and enough free time to start working on that bucket list.

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