Working After Retirement: 3 Ways to Do It and How It May Impact Your Benefits
Whether you miss the camaraderie of working in an office or simply want to boost your savings, working after retirement makes sense for many Americans. But there are things to consider, as working in retirement may impact your benefits and taxes.
At Montgomery Taylor Wealth Management, we work with many clients who go back to work in “retirement.” In our experience, we see this happen in 3 general ways:
- Finding a new, full-time job
- Taking on part-time work
- Starting your own business
Many retirees struggle with their identity when they’re no longer working. Going to the office every day for years on end is what they’re used to. It’s part of who they were. Finding themselves with a lot of free time can become more stressful than having a job. So, they return to work! And they may actually have more options.
A second career in retirement can be something you want to do rather than something you have to do. Are you able to return as a consultant? Or maybe, after years of working in finance, you decide to follow a passion and get a job at a winery or an elementary school.
What if you could work with more flexible hours?
There are more than 7 million people aged 55 and older working part-time, and more than 5.5 million of these individuals are working because they want to (not because they need to).
Part-time jobs are often less stressful and come with less responsibility, making them an ideal option if you want to stay semi-retired.
Working in retirement can also mean working for yourself.
For many Americans, retirement is the perfect time to monetize their passions by starting their own business. You could open a new storefront, sell homemade goods at farmer’s markets, or even start a lawn or gardening business.
Aim for a business that has a low start-up cost, so you don’t risk draining your retirement savings while trying to get it off the ground. And discuss your plans with your financial advisor. Do you have the money to make it happen? Do you qualify for small-business perks that will help boost your retirement plan? Examine your options and understand their effects.
Have a question about retirement? Contact the Sonoma County wealth advisors at Montgomery Taylor Wealth Management and get a discussion started.
How Working After Retirement May Impact Your Benefits
Working in retirement can be a really good thing – it can give you a sense of purpose, allow you to make some extra income, and keep you active. But you should also be aware of how it may impact your retirement benefits and taxes.
Here’s a quick breakdown:
Social Security is complicated. Whether your Social Security benefits will change after you go back to work depends on two factors: Your age and your income.
If you’ve already hit full retirement age, you can work as much as you want without it affecting your Social Security benefit amount. However, you may pay taxes on those benefits depending on your income.
If you’re collecting benefits before full retirement age and decide to go back to work, your benefit amount may decrease. For 2021, you can only earn up to $18,960 and still get your full benefits. Once you hit this limit, the SSA reduces your benefits by $1 for every $2 you make.
It gets a little better in the year you reach full retirement age. At that point, you can earn up to $50,520 a year before the SSA withholds $1 for every $3 you earn. The SSA stops reducing benefits once you hit full retirement age.
Talk to your financial advisor to determine which income thresholds you’d need to stay within to still receive your full benefit amount if you went back to work.
Working in retirement could bump you into a higher tax bracket, so you’ll want to watch out for that as well. You may also have to start paying taxes on part of your Social Security benefits if your combined income is at least $25,000 if you’re a single filer and at least $32,000 if you’re married, filing jointly.
Even if the pay looks good for a particular job, going back to work may impact your tax situation more than you’d like.
Tax services are one of our specialties at Montgomery Taylor Wealth Management. In fact, I was the first CPA CFP in Sonoma County. While many financial advisory firms focus on investments and financial planning only, our team of financial advisors, Certified Public Accountants (CPAs) and estate planning attorneys make sure to address the tax implications your retirement plan may have. (Watch this short video: Why Choose a CPA as Your Investment Manager?)
Retirement Accounts and Pensions
You can typically start contributing to your retirement accounts again once you re-enter the workforce, which is great for padding your nest egg with some added savings.
If you’re still working at age 72, you may also be able to pause Required Minimum Distributions (RMDs) for your current 401(k) plan. (You can’t pause them for old 401(k)s, but you could roll them over into your current plan if your employer allows it.)
Every pension plan has its own set of rules and guidelines. If you’re one of the lucky few who still has a pension, review your plan’s details to see how going back to work may impact your current or future benefit amount.
You’re automatically enrolled in Medicare Part A when you turn 65. This is typically free coverage that pays for inpatient hospital care, hospice care, and home health care.
You also have the option of enrolling in Medicare Part B if you want doctors’ visits and outpatient services to also be covered. The standard premium for Part B is $148.50 a month. (This cost is automatically deducted from your Social Security benefits each month.)
However, if you make more than $88,000 as a single filer or $176,000 as a married filer, your premium goes up based on your modified adjusted gross income. Talk to your financial advisor to find out exactly how much you’d pay based on your income.
If you’re under age 65 and don’t yet qualify for Medicare, working after retirement can be a great way to secure more-affordable health insurance.
Most companies offer employer-sponsored health coverage to full-time employees, but some, like Starbucks, Costco, UPS, and Staples, offer healthcare insurance to part-time employees as well. Many retirees who don’t want to work full-time end up applying to companies like these so they can save on health insurance and still enjoy a good work-life balance.
Need Help Deciding If You Should Work After Retirement?
There are major personal and financial benefits to working in retirement, but there can also be some tax and benefit ramifications if you’re not careful. Take your time exploring your options and think critically about the type of work-life balance you want to have in retirement.
If you need help figuring out how working after retirement will impact your benefits, the financial advisors, CPAs and estate attorneys at Montgomery Taylor Wealth Management can help you weigh your options. Schedule a complimentary consultation to get started.