Is there a place for a job in your retirement plan?
Most of us think of retirement as an end to work, but for some, it just means a decrease in hours or a transition to a new field. That might not be the retirement you’ve always envisioned, but it has some definite upsides, especially if you’ve struggled to save over your career. Here’s a look at some of the pros and cons of continuing to work throughout your retirement.
Pros of working in retirement
If you choose to have a retirement job, here are some of the benefits you can look forward to.
1. Steady source of income
Working provides you with a predictable source of income, and that’s invaluable during retirement. With money coming in, you won’t have to withdraw as much from your retirement accounts each month. You can allow your investments to continue to grow so they’ll be worth more in the long run. And if you don’t need the money, you can pass it on to your heirs instead.
2. An opportunity to save more for retirement
If you’re working, you can continue to set aside money in a retirement account. If you choose a tax-deferred account, like a traditional IRA or 401(k), your contributions reduce your taxable income for the year. Or you could go with a Roth IRA. You don’t get an up-front tax break with these accounts, but you get tax-free withdrawals later on.
3. Sense of purpose
Not everyone wants to spend their retirement at home, rocking on a porch swing. Some people enjoy the sense of purpose and order that a job brings to their life. For these individuals, a job might even be seen as an essential component of a happy retirement.
Cons of working in retirement
Consider these drawbacks before deciding if a retirement job is right for you:
1. Less free time
Working a job could take time away from your family members, friends, or hobbies. This could be a significant drawback for some, but you may be able to find a position that gives you the best of both worlds. You can look for a job that offers flexible hours or perhaps incorporates some of your hobbies so you don’t have to choose between work and enjoyment.
2. Smaller Social Security checks
Those who claim Social Security while working under their full retirement age (FRA) — 66 to 67, depending on your birth year — could see smaller Social Security checks in the short term. If you’ll be under your FRA for all of 2022, you’ll lose $1 from your Social Security check for every $2 you earn over $19,560. If you’ll reach your FRA this year, you’ll lose $1 for every $3 you earn over $51,960 if you hit this amount before your birthday.
The good news is, that money isn’t gone forever. Once you reach your FRA, the Social Security Administration redoes your benefit calculation to account for the money it previously withheld. That means you’ll get more out of the program going forward, but your checks will probably still be smaller than they would’ve been if you’d just delayed benefits until you retired.
It doesn’t have to be all or nothing
Working in retirement doesn’t mean you have to commit to a regular 9-to-5 job. You could switch to freelance or part-time work, depending on the field you’re in. Or you could try setting up your own business instead of working for someone else.
If you do decide to stick with a traditional job, you don’t have to do this for your whole retirement. You could work just long enough to help save what you need and then transition to a work-free retirement later on. It’s all up to you. Think about what makes the most sense for you right now — and don’t be afraid to change your mind as you near retirement.
