Secrets You Need to Know About Working During Retirement
Re-entering the workforce as a retiree: How hard can it be? Almost three-quarters of boomers express interest in working during retirement, but these earnest earners often have no idea how to return to the job search after a lengthy sabbatical. You might think of yourself as a quality candidate with years of professional experience under your belt. But age discrimination is a reality, and finding employment during retirement can be difficult.
Plus, there are a few secrets to this process you might not be aware of, such as the fact that going back to work might hurt your finances more than help them. Before you jump back into resumes and interview suits, memorize these 15 secrets to working during retirement, so you can navigate it the right way.
1. Your Social Security could change
If you choose to work during retirement, you could run risk of paying taxes on your Social Security benefits you never accounted for. Once the sum of your gross income, nontaxable interest, and half of your Social Security benefits total more than $25,000 ($32,000 for couples), your payments become taxable.
If you continue to work during your 60s, you can delay Social Security withdrawals — but only if you’re able to fund your lifestyle without them. Luckily, monthly benefits increase for every delayed month up until age 70, and the higher resulting payments last throughout your lifetime.
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2. Starting a business is still a good option for retirees
You might think your retirement years are not ideal for risking a small business endeavor, but recent reports say otherwise. Data from the Kauffman Index of Entrepreneurship shows those ages 55 to 64 accounted for about a quarter of new entrepreneurs in 2016. And seniors today are more likely to be self-employed than any other age group, according to the Bureau of Labor Statistics.
Although you might not be too keen on launching a full-time startup when others are spending time perfecting their golf game, the older generation encompasses the ideal combination of entrepreneurship qualities: experience, a range of social networks, and extensive expertise in an industry. Just be careful not to invest money you don’t have into a business that could fail.
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3. Leverage your expertise
When it comes to finding appropriate work during retirement, one of the best options is to find ways to share your expertise with others. There’s often money to be made sharing your knowledge with those just starting out. For instance, you could lend a hand to your former employer by way of contract work. After all, who’s better than you to train new employees or offer valuable insight into a field you spent years navigating?
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4. Working during retirement is not always worth it financially
Some people automatically assume going back to work as a partial retiree will benefit them financially, no questions asked. It might be hard to recall how much money it took to dress for the office, commute to work, and bring or buy lunch five days a week if you’ve been out of the working world. But you must remember employment and the accompanying expenses always go hand in hand.
These types of clothing, meal, and commuting expenses add up quickly, and depending on your new gig, they could work against your potential net income. Consider a work-from-home position to avoid these expenses weighing negatively on your wages.
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5. Part-time jobs fit the bill best
You just spent 40 years working a full-time job to the best of your ability, so why spend your years of leisure continuing to work a 40-hour work week if you don’t have to? Part-time work allows for a steady stream of income on a manageable schedule. Side hustles — or additional income opportunities — aren’t just for the emerging millennial generation. They’re also perfect for retirees who are looking for ways to earn extra cash on a part-time basis. Here’s a list of examples to get you started. Consider tutoring future generations on the side, tapping into the rental economy, or launching an e-commerce business selling things you create online.
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6. Consider moving to a different city
Some states and cities support older workers more than others. So if you’re planning to work during retirement in any capacity, it might be wise to move to a city that supports your needs best. Look at the metrics — such as job growth potential, unemployment rates, tax rates, and access to quality health care — to determine where you’ll get the most bang for your buck. (The Cheat Sheet put together a list of the 10 best cities for retirement here.)
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7. Beware of disappearing IRA tax breaks and hefty penalties
Most taxpayers enjoy a tax break on their earnings when they save in a traditional IRA, but eventually the IRS expects you to draw from these accounts to ensure most of your retirement benefits are paid to you during your life time. Workers age 70½ and over no longer qualify for tax deductions on IRA contributions. You will get slapped with a severe penalty if you don’t begin taking annual withdrawals from your retirement accounts at that age.
The penalty for not following the rules? Paying 50% of the required distribution you abandoned — also known as the excess-accumulation tax. So, if you didn’t withdraw the required $2,000 from your traditional IRA, the resulting penalty would amount to $1,000, a tough break for those on a fixed income.
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8. Employed retirees must still enroll in Medicare
You are eligible for Medicare at age 65 regardless of your employment status. If you fail to sign up during that enrollment period, you could be charged higher premiums. Delaying enrollment because of access to a group health plan is fine, but once you stop working you must enroll within eight months to avoid penalty. Therefore, even if you decide to work during retirement, you must remember to sign up for Medicare.
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9. Consider more than just the money
Deciding to work part time in retirement means you can be a bit more picky in the jobs you accept. Look for opportunities that give you a sense of purpose while still offering a reasonable paycheck to enjoy your new lifestyle. The weight of corporate responsibility likely washed away any semblance of a work-life balance years ago. But now that you’ve paid your dues, you should look for employment that offers both mental stimulation and a flexible schedule.
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10. Your income bracket could change
Increasing your income in retirement will feel like a lifted weight from your shoulders — until it bumps you into a higher income bracket and thus a higher tax rate. Typical non-working retirees usually take distributions from their 401(k)s and IRA accounts that allow them to pay less in taxes in a lower income-tax bracket. You must find the line between earning enough money to fund a healthy retirement and sabotaging your financial picture, as earning significantly more during your retirement years could play against you if you’re not careful.
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11. You might be able to receive your pension while still working
Maybe one of the reasons you want to work during retirement is to pad your savings account for a rainy day or two. Did you know your pension could help you do that even if you’re still employed? Many companies allow their employees to retire, begin receiving their pension, and be rehired elsewhere — whether it’s into the previous position or another position entirely. In such a circumstance, you can save your pension checks, earn an income, and continue contributing to a retirement account all while feeding that nest egg for the day you permanently retire.
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12. Take advantage of company perks that could help your retirement job search
You might think finding a part-time job during retirement will be easy, especially considering your countless years of experience in the field. But that’s not always the case. Even if retirement is still a few years away, it helps to set yourself up for success as much as possible by arming yourself with enough ammo to remain competitive in the job market.
Take advantage of company-sponsored training programs or tuition reimbursements while there’s still someone willing to foot your bill. This could help diversify your credentials, no matter what path you choose later.
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13. A well-rounded network still matters in retirement
Just because you’re nearing retirement age doesn’t mean you should abandon all recommended career practices completely. Even those who are considering part-time work or freelancing gigs should remain visibly active in their networking endeavors. This could include engaging with colleagues (especially the younger ones) at work or sharing your leadership advice on LinkedIn to remain relevant. One of these connections might come in handy should you encounter a road block during a future job search.
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14. Start planning now
One of the biggest tips you should know about working during retirement is a plan will make pinpointing your next steps more manageable. The career coaches at Next Avenue suggest creating a “second act ideas file” by brainstorming a list of retirement jobs you’d be interested in holding while you’re still employed full time. That way, if working during retirement becomes inevitable, you’ve already begun the process of capturing information, employment ideas, and relevant resources that help to ensure your job search doesn’t become a chaotic cluster in a rush for extra cash.
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15. Working during retirement is not for everyone
Remember, you spent years planning for retirement, so you wouldn’t need to work as you age. Maybe the itch to rejoin the workforce is really just cabin fever setting in. If your desire to work isn’t money-related but rather a way to settle the ants in your pants, consider other ways to get out of the house. Volunteering and finding hobbies that keep you intrigued while building your social network will often do the trick.
Follow Lauren on Twitter @la_hamer.