What do you want to do when you retire?
Buy a motor home and hit the road? Learn a new language? Work part-time? For a growing number of American retirees, continuing to work makes perfect sense. Many find they simply run out of things to keep them busy, while others miss the camaraderie and sense of purpose work gave them. Longevity, combined with insufficient savings, is driving more people to stay on the job longer.
There's also a very good chance of living a long time. According to Rate.com, "The Society of Actuaries (SOA) data suggests that a 65-year-old male today, in average health, has a 35% chance of living to 90; for a woman the odds are 46%." So, not working after retirement could mean living off savings for 20 years or more. That's just not feasible for some people. In 2018, almost 29% of Americans age 65 to 72 were either employed or looking for employment.
Whatever the situation, working after retirement can be both financially and personally rewarding. Here are some things to consider when planning the next phase of your life.
If you're like most retirees, you may have enough savings and income from your retirement plan to cover the basics, but you'll also need to consider inflation, long-term care, and rising medical costs.
According to the Insured Retirement Institute, only 18% of baby boomers are confident they will have enough money to comfortably live in retirement. However, that confidence increases to 45% if they own an annuity.
For seniors who didn't save a large enough nest egg, continuing to work may be a necessity. But even if it's not, having a paycheck helps to supplement and stretch that savings for the longer life spans than many expect.
Working during retirement means it's possible to keep your existing savings — and continue earning interest — while living off your extra income. Also, your pension benefits from your former employer are normally not affected unless you plan to return to work for them.
Social Security rules for retirement and benefits
If you retire and begin to receive benefits before your full retirement age as defined by the Social Security Administration, your Social Security benefits may be reduced by as much as 30%, depending on the year you were born.
By working full or part time, you can delay the start of Social Security benefits. The longer you wait, up until the age of 70, the bigger your monthly Social Security check will generally be.
However, if you are already receiving Social Security benefits and decide to work, be aware that in 2020 if you make more than $18,240 prior to your full retirement age, $1 for every $2 made will be deducted from your Social Security benefit. In the year of your full retirement age, Social Security will deduct $1 for every $3 you earn after $48,600; they only count your earnings up to the month before your full retirement age, not after. See ssa.gov for full details.
Once you reach full retirement age, you can work as much as you like without impacting your Social Security benefits. However, you should consult your tax adviser regarding the tax consequences of such work arrangements on your Social Security benefits.
Eligibility for health insurance benefits
For many retiring seniors, the high cost of medical care can be quite a shock when they are no longer part of a company plan. This is especially true if you retire before 65, the age you qualify for Medicare.
And once you qualify and begin receiving Medicare, you may face significant out-of-pocket expenses including prescription drug costs. Even after you turn 65 and qualify for Medicare, it can be helpful to have additional health insurance through your employer or Medicare Supplement Insurance because there are gaps in Medicare coverage.
Having a job that pays medical benefits after you retire could save thousands of dollars a year in medical expenses.
Social activity and health benefits
Exercise, reading and crossword puzzles may provide the stimulus to help stay fit mentally and physically, but working is also an excellent way to stay engaged.
People who work after retirement often remain more active and socially connected, which can mean better overall health and fewer medical issues. Working part-time can give you a sense of being part of something without being tied to a career and long hours.
An encore career
Retirement can be the start of a whole new career, but it doesn't have to be the same old work. Many seniors thrive in encore careers and they can provide a second chance at job satisfaction.
Encore careers can open interesting opportunities that weren’t practical earlier in life, whether it be working to support a favorite cause or even channeling your passion into your own small business.
Tip: If you plan to work during retirement, start your job hunt or finalize your employment before you retire. You can also sign up for a course or two to learn new skills.