Sean Canonica
Jun 28, 2024
DeLuca shares that, in his estimation, “it’s worth making the extra dollars” and taking the hit to your Social Security if “you are doing a job in retirement that you enjoy and provides purpose.” Ultimately, he says that you’ll likely find yourself “making up the lost social security with your earned income, and you are receiving invaluable benefits.”
Retirement often means the end of one’s working career, but many retirees choose to return to work for both fulfillment and financial reasons. Although there are benefits to working post-retirement, it's crucial to understand the potential impacts on other aspects of your retirement plan.
Key Takeaways:
Purpose and Social Interaction: Working during retirement can provide purpose and social engagement. Anthony DeLuca, CFP, highlights that retirees may "lose a piece of themselves" and struggle with "maintaining a sense of purpose in society," prompting some to seek part-time employment.
Financial Stability: Working can help stretch retirement savings and achieve a more comfortable lifestyle. DeLuca mentions that working reduces the need to draw down from retirement accounts, thus enhancing financial stability.
Social Security Impacts: Earning during retirement can reduce Social Security benefits. DeLuca cautions, "If you make too much, they will reduce your benefits," with specific thresholds affecting the reduction rate.
Taxes: Higher earnings can make Social Security benefits more taxable. Income thresholds for individuals and joint returns determine the taxable percentage of benefits.
Pension Considerations: Generally, pension payments continue unless returning to the same employer, which might impact benefits.
Why Retirees Return to Work:
Financial Needs: Over 20% of retirees in their 60s and 70s return to work to supplement their income, especially if they aim for a more lavish lifestyle, like traveling.
Purpose and Fulfillment: Chris Urban, CFP, describes retirement as a "work-optional" phase, where finding purpose or social interaction drives some to re-enter the workforce.
Financial Benefits:
Additional Income: Post-retirement jobs provide extra income, allowing retirees to live comfortably and manage inflation and rising living costs.
Delayed Social Security: Working enables some to delay Social Security benefits, resulting in larger payments upon reaching full retirement age.
Savings and Investment: Extra income allows for continued savings and investment, preparing for future expenses like health and long-term care.
Social Security and Pension Impact:
Benefit Reduction: Working can reduce Social Security benefits. DeLuca notes reductions by "$1 for every $2 you make over the annual limit" and adjustments at full retirement age.
Taxation: Increased earnings can lead to higher taxable Social Security benefits, with thresholds affecting the taxable percentage.
Pension Payments: Returning to work generally doesn’t impact pension payments unless it’s the same employer, which may have specific rules.
Deciding If Working Is Right for You:
Working post-retirement has substantial benefits but isn't ideal for everyone. DeLuca suggests that if a retiree enjoys their job and finds it purposeful, "it's worth making the extra dollars" despite the impact on Social Security benefits. Potential job opportunities for retirees include becoming an "adjunct professor or tutor," or a "tour guide or youth sports [official]."
To decide if working is right for you, consider consulting a financial advisor to evaluate your financial situation and goals.