What to Consider if You Plan to Work in Retirement

Today, it's more common for adults 65 and older to stay in the workforce. According to the Pew Research Center, about one in five adults in that age group are employed, a significantly higher percentage than it was in the 1980s or 1990s. 

Yet there are some key considerations to keep in mind before submitting your résumé. Work in retirement can affect your finances, health insurance and other areas of your life. 

Reasons to work after retiring

Several motivations can explain the desire to keep working after retiring from your main career path: 

1. Social interaction 

Continued work, perhaps with reduced hours or a slower pace, can help you meet people and build a retirement network. For example, if your family and friends don't live nearby and you miss social interactions, you may enjoy chatting over the watercooler with your co-workers or meeting up with colleagues for happy hour.

2. Income

If you work part time, you can use your additional earnings for supplementary spending, perhaps on special trips and events with your loved ones. Alternatively, the extra income may help you to take up a new hobby like photography without draining your retirement savings. 

3. Staying active and fulfilled

You've likely been working for decades by the time you reach retirement age. Suddenly not going to work may leave you feeling lost or untethered. Continued employment, even on a part-time schedule, can help you maintain a routine and structure. And, if you enjoy the work, it can provide you with a sense of fulfillment and mental stimulation.

Work and retirement benefits and taxes

For all the advantages of working in retirement, doing so can affect your finances through reduced benefits and increased taxes. Here's what you should know: 

Social Security benefits

Depending on your age and how much you make, continued paid work in retirement may trigger a reduction in what you receive from Social Security. Here’s how the rules currently work:

• If you're of full retirement age for Social Security purposes (that’s 67 or older for those born on Jan. 2, 1960, or later) you can continue to work and keep all of your Social Security benefits, regardless of how much you make from your employment. 
• If you're not yet 67, the Social Security Administration will reduce your annual benefits by $1 for each $2 you earn over $23,400. But you essentially lose the money only temporarily. Once you reach the full retirement age, your benefit amount is re-calculated, and you are gradually reimbursed for the amount that was withheld due to age and income. 

Taxes 

Earning retirement income could increase how much you pay in taxes. If you receive Social Security benefits or withdraw money from your retirement accounts while also earning income, you could end up paying a higher tax rate. And, if it pushes your income high enough, you could end up having to pay taxes on your Social Security benefits, too. 

If you're thinking of retirement work, it can be a good idea to engage a certified professional accountant (CPA) or financial planner. They can calculate how your retirement earnings will affect your taxes, and what you can do to prevent a surprise tax bill. 

Retirement account withdrawals

Most retirement plans, such as traditional individual retirement accounts (IRAs) and 401(k) plans, are eventually subject to required minimum distributions (RMDs). You are required to take out a certain amount from your retirement account each year, usually starting at the age of 73. Otherwise, you risk hefty penalties. 

Working in retirement doesn't spare you from RMDs; you're still required to meet the minimum withdrawal requirements. But, on the plus side, if your retirement employment qualifies you for a 401(k) plan, you can take advantage of those benefits and continue building your savings.

Health care and insurance considerations

As you age, health care can easily become one of your biggest expenses. In retirement, keep the following options in mind: 

Private health insurance

If you are under 65 and enjoying early retirement, you don't meet the eligibility requirements for Medicare and will need to secure other health coverage. You may be able to receive it through private insurance companies, such as a policy purchased through Healthcare.gov.

Open enrollment for private policies is typically November 1 through January 15. But, if you retire midyear from your main job — and from the company that provides your health insurance — you may be eligible for a policy through Special Enrollment. Or, you could continue your employer coverage through COBRA, the federal law that allows employees to temporarily maintain their employer-sponsored health insurance coverage after certain qualifying events. 

Employer-sponsored plans

If you work in retirement, you may be eligible for employer-sponsored health coverage through your part-time work. While employers are not obliged to provide such coverage, some do so as a way to attract and retain talent. Check with your Human Resources department. If coverage is available, you may be able to delay Medicare enrollment without penalty if you're eligible for coverage. 

Medicare

Once you turn 65, you can enroll in Medicare. The initial enrollment period is around your 65th birthday. After that, the annual enrollment period is between October 15 and December 7. However, you can enroll in Medicare outside the initial enrollment period if you retire and lose your employer-sponsored health coverage. 

Long-term care needs

While you may be healthy now, health can change — and sometimes in quick and unexpected ways. To protect your finances in retirement, it's important to think about your possible need for long-term care. 

Long-term care can include in-home care or an assisted living or nursing home facility, and it's often excluded from Medicare. While you can purchase long-term care insurance or add it as an insurance endorsement to some life insurance policies, you can also use these options: 

• A deferred annuity: A deferred annuity can supplement your retirement income, and you can use the annuity payouts to help cover the necessary long-term care costs.
• Whole life insurance: If your whole life insurance policy has built cash value, you can take out a policy loan to pay for some of your long-term care expenses, if needed.