Working Part-Time While Retired

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 Image Credit | opolja | Adobe Stock

Recently I had a conversation with someone who was planning to retire this year. I asked them what they were looking forward to in retirement. Their response highlighted a shift in how retirees are approaching the next stage of their life:

“Babysitting the grandkids. Surfing. Oh and I’m going to do consulting work for a handful of select clients.”

More and more I am seeing the traditional idea of retirement evolve. Retirees are choosing to return to some form of work during their early retirement years. The benefit to lifestyle, finances, and purpose can be powerful – but there are things to consider before making part-time work an integral part of your retirement plan.

In this post, you’ll learn:

• The main benefits retirees may see from continued work in retirement

• The financial considerations that impact the decision to work

• The challenges of committing to part-time work in retirement

The Benefits of Continued Work in Retirement

I think we first need to differentiate between the two types of people who work in retirement:

1. Those who work in retirement because it’s a necessary part of their financial plan.

2. Those who work in retirement by choice.

When Income from Work is Needed

If you reach retirement age with not enough retirement savings or expected cash flow from Social Security benefits to pay for your lifestyle, you may have to continue working in some capacity to make ends meet.

This highlights the importance of getting a clear picture of your finances well before you reach retirement age. Tracking your assets against liabilities and expected income and expenses in the future will give you an idea whether working into retirement will be a necessary part of your plan.

A big factor in whether you can continue working in some capacity is your health. People tend to overestimate their ability to work as they age. Declining health can force people to retire earlier than they expected, which can be a significant blow to their financial plan if they were relying on income from working.

Working in Retirement by Choice

The second group chooses to work in retirement. The benefits of doing this can be financial, but it can also improve lifestyle by allowing more opportunities for social interaction and mental and physical exercise.

I talk to happy retirees all the time who work a side-hustle. They spend a few hours of their week teaching a class, doing consulting work, or providing a service they would be doing anyway but getting paid for it. The truly special situations allow them to travel to places they want to go, interact with others with similar interests, and receive compensation for services they provide.

I’ll also see business owners continuing to work in a limited capacity while the next generation prepares to take control of the business. The incoming leader learns with hands-on guidance from the outgoing owner – an attractive situation for those buying the company.

Financial Considerations of Working In Retirement

Part of the decision to work in retirement should consider the financial impact.

First, the benefits:

• More money! That’s usually a good thing.

• You can delay claiming Social Security benefits if the income is being replaced by

  work earnings. The benefits increase every year they’re delayed until age 70.

• You won’t need to withdraw as much from your retirement accounts. That’s good

  for portfolio sustainability and has tax advantages.

• You can take advantage of your company retirement plan, if eligible. Save more,

  receive more tax benefits. You may also be able to delay RMDs from your current

  employer’s 401k if you’re still working.

• Expanded medical coverage options. May be cheaper to receive coverage under

  your employer than searching the marketplace.

These are all great things – now what about the potential drawbacks to consider?

• Taxes! The additional income can generate more ordinary income to be taxed. The

  net take-home pay should be calculated and weighed against the effort and time

  put into working.

• If you’re already receiving Social Security benefits and are less than your Full

  Retirement Age, your benefits may be temporarily reduced by work earnings.

• Trigger of higher Medicare premiums (IRMAA): if you are already on Medicare Part B

  and Part D, higher income can increase your premiums.

• Roth conversions may be less attractive. The additional working income can place

  you in a higher marginal tax bracket compared to future years.

Making the Decision to Work in Retirement

I think a good start is defining “why” working in retirement is important to you. Are the main benefits financial, or is it purpose-driven? How will this support your ideal lifestyle and the three pillars of retirement happiness? [How to Retire Happily: Lessons on Living Well Beyond the Numbers] Working in retirement should elevate your health and lifestyle and not detract from it.

The obvious impact to lifestyle is the need to maintain structure and routine. Part-time work can provide a healthy rhythm to your week and prevent feelings of boredom or lack of purpose.

Pre-retirees often imagine themselves working in retirement – a recent EBRI Retirement Confidence Survey found that in the past decade, 70-80% of current employees have expressed plans to take up part-time work after ending their main careers.

The same EBRI survey found that only 25-30% of retirees end up following through on their plans for part-time work. I encourage those near retirement to really think about whether they’ll want to work once retired.

I mentioned earlier that most people tend to overestimate how long they’ll be physically capable of working.

The U.S. Health and Retirement Study found that more than 1/3 of older workers retire earlier than planned, mainly due to health surprises. These findings are magnified for those intending to retire at older ages. In the group of participants planning to retire at age 66 or older, 55% of them retired earlier than intended.

Proceed cautiously if part-time work is a key piece of your retirement income plan. If you’re years away from retirement, consider the probability that you’ll be able and willing to continue working during your retirement years. The benefits can be significant, but you’ll need your health and a strong “why” to carry you forward.

That’s all for now. Have a great weekend –

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Travis

Investment advisory services offered through Andrews Advisory Associates LLC, a registered investment advisor.  This blog is not meant to give investment advice. Before investing in any advisory product please carefully read any disclosure documents, including without limitation, the firm’s Form ADVs. The information herein is provided for informational purposes only, and does not constitute an offer, solicitation or recommendation to sell or an offer to buy securities, investment products or investment advisory services. Nothing contained herein constitutes financial, legal, tax, or other advice. These opinions may not fit your financial status, risk and return profile or preferences. Investment recommendations may change, and readers are urged to check with their investment adviser before making any investment decisions.