To work or not to work? If you’re nearing retirement age, that may be a question you’re asking.
Having a job in your senior years has advantages, but it’s not a universally great solution. To help you decide if a working retirement is right for you, here are two pros and three cons you’ll want to consider.
Pro: Your health may benefit
Several studies show a connection between working at older ages and improved cognitive function. The basic theory is that work provides mental and social stimulation, and that activity can keep you happier and sharper in your senior years.
Those health benefits are likely more pronounced when you don’t have an active friends group or hobbies you love. On the other hand, if your current profession is emotionally demanding and time-consuming, the stress of working might offset the benefits.
Pro: Your savings may last longer
Continuing to earn a paycheck should take pressure off your savings. If you can keep contributing to your retirement account and delay your Social Security, you benefit three ways:
More of your savings stays invested and working for you.
Ongoing contributions add to your share counts, increasing your future earnings potential.
When you delay Social Security, your retirement benefit increases. This is the trade-off for forgoing income upfront.
Con: Working may not fix a savings shortfall
Finances are a common reason seniors keep working in retirement. Unfortunately, continuing to work isn’t a failsafe solution for a savings shortfall.
Continuing to work might even backfire. This can happen if there are unresolved issues that caused you not to save enough. If you spend more than you make, don’t prioritize saving, or haven’t mastered the art of budgeting, earning a paycheck is only a temporary patch.
Once you can’t work anymore, you’ll likely still have insufficient savings — and no great solution to fix it.
If money is the reason you decide to work in retirement, be straight with yourself about why you are underfunded. Fix those issues as you continue to work. That gives you a better chance of enjoying a traditional retirement without a big lifestyle downgrade.
Con: Your Social Security may take a hit
Social Security uses two formulas to calculate the penalties:
In the years you haven’t yet reached FRA, your benefit is reduced by $1 for every $2 your income exceeded the limit. The limit can change from year to year, but it’s $19,560 in 2022.
In the year you reach FRA, your benefit is reduced by $1 for every $3 you earned above a higher limit. In 2022, that limit is $51,960.
You can avoid the deductions by keeping your income below the threshold. Or — this is sometimes the better strategy — make enough working so you can delay your Social Security until FRA.
Con: You delay the full retirement experience
Traditionally, retirement involves doing all the things you couldn’t do in your working life — hanging out with friends, picking up new sports and hobbies, and taking trips. Working may provide some funding for those activities, but you give up your free time in the process.
Your time is valuable, especially if your health is in decline. Putting off your bucket-list experiences may be disappointing — possibly more disappointing than downsizing your life now so you can live without your paycheck.
To work or not to work
Working in retirement is less than ideal if you have a stressful job, you’re collecting Social Security before FRA, or you’re in poor health. It’s also problematic if the ongoing paycheck allows you to ignore your worst financial habits.
The other side is that if you’re happy with your job and healthy, you could be a great candidate to keep working in retirement. Use the time to practice living within a budget as you shore up your finances. That way, when you do turn in your last pink slip, you’ll have more funding for the retirement lifestyle you want.
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