Working in Retirement? Here’s Why It’s Great — and Why It’s Really Not

Retirement can mean different things to different people. For some, it’s the time to travel the world and do the things they’ve always wanted but never had the chance to do. For others, it’s the time to do absolutely nothing after working for decades. And for other people, it could mean continuing to work, just at their own discretion.

There are no rules about the right way to retire. So if you somehow find yourself working during retirement, it’s not necessarily a bad thing. It could have some unintended consequences, though.

Be prepared

Nobody knows exactly how much money they’ll need in retirement because different lifestyles will require different financial considerations. The best thing you can do is try to be financially prepared for your personal situation.

If you’ve envisioned a certain retirement for yourself, there’s nothing wrong with doing what it takes to make it happen, including returning to work. Maybe saving for traveling wasn’t a priority before, but you suddenly get the urge and realize you could use a few extra dollars to make it happen.

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You may also find that working in retirement isn’t optional for you. Life doesn’t become cheap just because you retire.

You may save on certain expenses, but there are also other expenses, like healthcare, that unfortunately tend to increase when you’re in retirement. According to Fidelity, the average 65-year-old retired couple in 2022 will need around $315,000 to cover healthcare expenses during their senior years. For some, returning to work isn’t done by choice; it’s done for necessity.

Be careful with Social Security

Social Security is a great source of retirement income, and for many people, it’s their primary source. You can begin taking Social Security benefits at age 62, but your full retirement age (FRA) — which is 67 if you were born in 1960 or later — is the baseline that determines how much your monthly benefits will be. You don’t have to stop working just because you begin taking your Social Security benefits; you just need to monitor how much you make.

If you decide to begin receiving your Social Security benefits before your FRA but continue working and make more than a certain amount, you’ll be subjected to the retirement earnings test (RET). This may further reduce your benefits before you reach FRA. But the money that’s withheld will be added back once you reach FRA.

Imagine if your FRA was 67 and you decided to take benefits at 62 while making over the allowed threshold. If the RET lowered your yearly benefits by $3,000, Social Security would have withheld $15,000 over the five years until you reach age 67, your FRA. Once you reach 67, that $15,000 will be added to your monthly benefits, spread out over the remainder of your life.

If you’re under your FRA and take benefits, your annual earnings limit is $19,560 for 2022. If you’ll reach your FRA in 2022, the most you can earn in the months leading up to your FRA is $51,960 before you trigger the RET and get your Social Security checks reduced.

Start prepping early

If you’re working in retirement, hopefully it’s because you want to and not because you need to. The best thing you can do to ensure that’s the case is by starting to prep for retirement early.

Time is the greatest asset in investing, and if you have it on your side, take advantage of it. Your future self will be very glad you did.

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