Should you work in retirement? Consider these pros and cons
Working in retirement was an oxymoron, but times have changed. Today, more and more seniors are exceeding traditional retirement deadlines to continue earning their wages. The Bureau of Labor Statistics expects the trend to continue and predicts that the percentage of workers 65 and older will increase faster than any other age group through 2024.
There are advantages to working in retirement. Two important benefits are continuous income and sponsored work health care. But even with the financial rewards, an extended career isn’t for everyone.
To help you imagine how work can (or cannot) fit into your retirement plan, here are two pros and two cons of working in retirement.
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For: Working earns a salary, then some
The financial benefits of continuing to work are significant. When you keep working, you keep earning. This gives you more time to stuff your 401 (k) Where IRA. You also reduce the number of years you will siphon distributions from your retirement savings. Continuing to earn a salary should reduce the risk of running out of money before you die.
If your employer has a good health care plan, keeping your job longer could also save you thousands in medical bills.
And then there’s the impact on your Social Security advantage. The later you submit your Social Security application, the higher your allowance may be. Sure, you forgo an upfront income for that higher benefit later on, but you might not care if you still earn a full paycheck.
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Advantage: Working avoids boredom
A study by Merrill Lynch and research firm Age Wave reports that many retirees feel anxious or bored, especially in the first two years of retirement. Some 35% of seniors in the study admitted that structuring their time in retirement was Stronger than during their working years.
Work provides structure, as well as social interaction, cognitive stimulation, and often a sense of purpose. All of this can contribute to a greater sense of contentment, while preventing cognitive decline.
Of course, these benefits may not be available if your current job is stressful or too demanding. In that case, you might be thinking about the possibility of moving into a role that would be fulfilling.
Downside: your paycheck could affect your social security
You can work and collect social security at the same time, but there is a caveat. Before reaching Full retirement age (FRA), social security is subject to income ceilings. If you exceed these limits, your pension benefit will be affected. You can find out more about your FRA here.
The penalty is calculated in two parts, depending on your age.
- If you are on FRA for the entire year, your benefit is reduced by $ 1 for every $ 2 you earn over the annual limit. In 2022, the annual limit is $ 19,560.
- In the year you reach FRA, your benefit is reduced by $ 1 for every $ 3 above an upper limit. The formula only counts the income earned during the months preceding your arrival at FRA. In 2022, this upper limit is $ 51,960.
If you plan to continue working, you can avoid these benefit cuts while you wait for FRA to claim your social security.
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Disadvantage: Working takes time compared to other goals
Perhaps the biggest downside to working in retirement is the lack of freedom to choose how you spend your time. The shared vision for retirement involves carefree days, quality time with family and friends, and the pursuit of hobbies. Add work to that vision and the dynamics can look very different.
This is a disadvantage that you can assess in relation to your health. If you’re in good health, delaying those carefree days for a few years can be a reasonable compromise. Keeping working will end up providing more funding to do the things you want, after all.
On the other hand, if your health is poor, you might prioritize your quality of life today, while you’re healthy enough to enjoy checking out the activities on your to-do list.
Finances vs quality of life
You can group the pros and cons of working in retirement into two categories: finances versus quality of life. On the surface, the two seem to be in opposition. Working in retirement is good for your financial health, for example, but it can be bad for your quality of life.
The golden mean might involve a different type of job than you have today. A job that you enjoy that doesn’t consume everything can offer the right mix of perks – income, sense of purpose, and enough free time to start working on that bucket list.
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