Should You Go Back to Work as a Retiree If Your Nest Egg Isn’t Cutting It?

After leaving the workforce, you’ll have to start relying on savings and Social Security to support you. Unfortunately, you may discover these income sources are insufficient — especially if you were hoping to live on Social Security alone or if you overestimated the amount of money your retirement investments would produce.

If you’ve found yourself facing financial concerns as a senior, one option that could be available is to return to work. But is this a choice worth considering?

The big benefits of returning to work when you’re running short of cash

If you’re in danger of your retirement savings running dry, going back to work could help you in a few big ways:

You can bulk up your retirement investment account: Once you’re working again, you can start putting more money away. Chances are good you’ll be old enough to make catch-up contributions, which allow you to invest more in tax-advantaged retirement plans so the government can heavily subsidize your savings efforts.
You can leave your savings alone to grow: If you can earn enough by working, you can stop withdrawing from savings. Since you’ll be able to leave more money in your accounts to earn returns, you can grow your nest egg quickly rather than causing it to dwindle by taking cash out.
You may be able to qualify for valuable workplace benefits: If you go back to work and get back on an employer’s insurance plan, you may be able to avoid paying for coverage out of pocket, and you may get broader coverage than you had as a retiree. This can lower your healthcare costs, which also helps preserve your nest egg.

Any one of these advantages alone could make a huge difference in your financial security late in life.

The potential downsides of going back to work

Of course, there are some downsides of returning to the workforce as well. Specifically, you’ll be giving up your freedom in order to earn a paycheck again. And working may be taxing on you physically if you’re older and your health isn’t great. You may also face challenges finding a good-paying job.

It’s also worth considering the impact of working while receiving Social Security benefits. If you’ve claimed your retirement checks and haven’t yet reached full retirement age (FRA), it’s possible you’ll have to forfeit some of your retirement benefits, depending how much you earn.

Specifically, you’ll lose $1 in benefits for every $2 earned above $19,560 per year if you won’t reach your full retirement age at any time during the year. And if you’ll reach FRA at some point during the year you’re working, you’ll lose $1 in benefits for each $3 earned above $51,960.

While this may sound like a bad thing, forfeiting some of your benefits temporarily can actually help you out later in life. The Social Security Administration will recalculate your monthly benefit after you hit your FRA. For each check you missed out on due to high earnings, you’ll be credited back the early filing penalty applied for that month. These penalties reduce your benefit, so being credited back for them will lead to higher monthly Social Security checks for the rest of your life.

You do need to budget for the fact that you won’t get your Social Security benefits if your earnings are too high while working. But if you can live off your paychecks alone, you’ll end up better off because of your higher future retirement benefits and because of the opportunity to bulk up your savings.

This can mean going back to work really goes a long way toward improving your situation if your nest egg currently isn’t sufficient to provide financial security in your later years.

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