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

According to a study released this past summer by the American Association of Retired Persons (AARP), some 42% of retired Americans are either working in retirement or plan to do so, while 57% of those nearing retirement plan to keep working.

What is driving this trend? Let’s take a look at some of the reasons people are working longer — and some points to consider when making that decision.

Working for a (retirement) living

For many people, working in their retirement years is a necessity. That AARP survey said that 55% of those who are working in retirement are doing so for financial reasons. This may be because they were forced to retire early due to getting laid off, a company reorganization, or to care for their health or the health of a loved one, among other reasons. Some may feel they don’t have enough, given the rise in inflation and the higher cost of living.

Another reason is that many people lead healthier lifestyles and live longer, so they want to stay active and keep working. To that point, the Allianz Life Insurance Retirement Risk Readiness Study, released in January, said 56% of people nearing retirement say they plan to work well past age 66 to keep themselves busy.

A third possible reason is the rise of the gig economy, where many companies rely more than ever on freelancers and contract workers, and they appreciate the experience and expertise of post-retirement workers in these roles. And retirees like them because they afford them the ability to work as much, or as little, as they like.

But keep in mind that perception is not always reality, as the 2022 Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI) and Greenwald Research points out. That survey found that while about 40% of workers expect to gradually transition into retirement, meaning they’ll keep working in some part-time capacity, only about 17% actually do have a gradual transition. Said differently, some 73% of those polled said their retirement was a full-time stop.

The pros and cons of working in retirement

The benefits of working in retirement are, obviously, to make ends meet if you need the extra cash. Also, keep in mind that you can downsize your home or move to a less expensive area to boost your nest egg or reduce your living expenses.

But if you don’t have pressing financial concerns, working is a great way to stay active and engaged. It can also help you hold off longer on taking Social Security until your full retirement age (FRA), which is 67 for people born in 1960 or later, 66 for those born in 1954 or early, and 66 and change for those born between 1955 and 1960, depending on the year. Likewise, it may allow you to take less out of employer-sponsored plans or investment accounts until you need it later in life or if you want to bestow more to your heirs.

But there are a couple of things to consider. If you are working and plan to collect Social Security, it could take a bite out of your Social Security payments. That’s because there are earnings caps for the years leading up to your FRA.

So, this year, if you earn more than $19,560 in the years before your FRA, the Social Security Administration will deduct $1 for every $2 you make above that limit. In the year of your FRA, you can make $51,960, but if you make more than that, the SSA will deduct $1 for every $3 you earn above that number. In that second case, though, you only consider earnings in the months leading up to your FRA. When you hit your FRA, there are no caps, so you can take your Social Security at that point and earn as much as you want.

Of course, if you have goals for retirement — whether it is traveling the world, enjoying your hobbies, relaxing and socializing with friends, spending time with family, or buying that dream house — working will cramp your style. But then again, a side gig where you create your own hours could be the best of both worlds, letting you work and play.

Ultimately, you want to be financially secure in retirement so you can work if you want to, but you don’t have to work if you don’t want to work. And that can be achieved by consulting with a financial advisor to build a strategy or taking steps before you are retired to make sure you have options.

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