Your Guide to Working After Retirement

Retirement used to mean dropping out of the workforce entirely to pursue leisure or rest. But that’s not necessarily the case anymore. The current generation of retirees is redefining what it means to be retired and, for some, that means working after retirement. 

Sometimes called a second career, working in retirement is a recent trend that might allow you to delay tapping into your retirement savings. Working after 59.5 could also affect your Social Security and tax rate, so there are rules you need to know, and it’s not a decision to be made lightly. 

Whether you want to simply earn extra money or if you just enjoy working, here are six things to consider when deciding whether or not working in retirement is right for you.

1. Your Social Security Could Change

   You can work and collect Social Security, but you need to know the details. If you’ve claimed Social Security benefits early, but wish to continue working, you’ll be subject to an annual earnings test that will reduce the amount you receive from Social Security.

   According to SSA.gov, in 2020, if you earn more than $18,240, you’d lose $1 in Social Security benefits for every $2 in earnings above the limit. If you reach retirement age during 2020, you lose $1 in Social Security benefits for every $3 you earn above $48,600 until the month you reach full retirement age. However, once you reach full retirement age, there’s no penalty for working while receiving Social Security payments. Ultimately, there’s no limit to how much you can earn if you are retired, but you have to account for how your earnings affect your social security payments — which depends on your age.

2. Retirement Could Be the Time to Start a Business 

   Often, retirement is seen as a chance to try something new and even pursue career dreams you weren’t able to explore before. This also gives you a chance to work on your own terms, and perhaps use that work to make a difference in the world. With decades of experience, connections and financial stability, retired entrepreneurs have many advantages on their side for starting a new business.

3. Working Past Retirement Means More Opportunity to Save

   If you haven’t saved enough for retirement or have debt, working longer may allow you to put more money away. According to Go Banking Rates 2019 Retirement Survey, 64% of Americans are expected to retire with less than $10,000 saved for retirement.

   Working an extra year or two can make a big difference in your retirement savings. You’ll also be contributing more to your retirement plan. 

   If you’re 50 or older, you may be able to make annual catch-up contributions at the end of each calendar year, according to the Internal Revenue Service. Catch-up contributions up to $6,500 may be allowed for 401(k), 403(b), SARSEP and governmental 457(b) plans in 2020.

4. You Can Delay Social Security Benefits

   It may seem like a good idea to take your Social Security benefit as soon as possible. However, if you delay taking it past your full retirement age, it’ll result in a higher monthly benefit, which can help you maximize your Social Security benefits.

   If you delay the start of your benefits, they will increase 8% each year after your full retirement age, up to age 70. For example, if your benefit at age 62 is $1,275 per month and your expected full retirement benefit at 66 is $1,700 per month, it would increase to $2,244 per month by age 70. That’s 76% higher than if benefits would have started at age 62.

5. Retirees Must Enroll in Medicare

   When deciding whether to keep working after retirement, be sure to consider medical coverage. Access to your employer benefits can be a big reason for working past retirement age. The employer-sponsored health insurance coverage you’ve held through your employer may be hard to match once you’ve retired, but Medicare eligibility begins at 65, regardless of your employment status. Delaying enrollment because of access to a group health plan is fine, but once you stop working you must enroll in Medicare to avoid a penalty.

6. Working After Retirement Isn’t for Everyone

   You’ve spent years planning for retirement. Maybe the itch to rejoin the workforce isn’t there, but you’ve got a case of cabin fever. If that’s the case, consider other ways to get out of the house like volunteering and finding hobbies that you enjoy. If you want to continue working but aren’t interested in a 40-hour work week, consider working part-time. By working part-time, you can achieve a good balance with a steady stream of income and a manageable schedule.

Start Planning Now

Whether you’re already enjoying retirement or it’s 20 years from now, it’s never too late to learn more about how you can maximize your retirement. Connect with your local Farm Bureau advisor to learn how you can take charge of your retirement strategy.