The upside of working in retirement

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The additional income that comes with part-time work can help boost savings and increase financial, physical and emotional well-being
We need to be financially prepared for 100-year lives. That puts a spotlight on the savings you've built up since they need to last for that longer life.
— Cynthia Hutchins,
director of Financial Gerontology, Bank of America
The idea of retirement has long conjured up images of leisure and travel, but an increasing number of workers also see the value in continuing to collect a paycheck.
Nearly a quarter of today's retirees do some work for pay, but a whopping 73% of pre-retirees expect to work after they officially retire — up from 68% who said the same in 2022.Footnote 1
For some, it may be about the money. Four in 10 workers and three in 10 retirees worry that their money won't keep up with inflation in retirement — collecting a paycheck could provide a financial buffer. For others, the benefits may be physical and emotional. Post-retirement work, which can provide a social outlet, has been linked to improved healthFootnote 2 and lower rates of depression.Footnote 3 For many, working in retirement serves as an opportunity to find new interests and pursue different opportunities.
With some companies adopting remote work as the norm, the ability to do your job from anywhere could provide even more incentive to continue working in retirement. If you're considering doing so, asking yourself the following questions could help you better understand what the extra income might mean for your finances.
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If you're considering earning income after you retire, you may want to discuss these questions with a financial advisor or tax professional.
Consider using it first to cover expenses so that you can delay drawing down your savings and retirement assets. The extra money may also allow you to pursue new goals, such as philanthropy, or put you in a position to leave more for your heirs.
Your benefits may be reduced temporarily if you work and collect Social Security before your full retirement age (66 or 67, depending on what year you were born).Footnote 4
Review the Medicare rules carefully to make sure you won't be penalized if you decide to delay signing up because your job offers benefits or you're covered under a spouse or partner's plan. Once you reach age 65, a higher income can affect your Medicare premiums.Footnote 5
Your earnings could push you into a higher tax bracket. And if you're already claiming Social Security benefits, as much as 85% of your Social Security income could be subject to federal (and possibly state) income taxes.Footnote 6

Question: How long will I need my retirement assets to last?

At age 65, life expectancy for a man is 82; for a woman the same age, it's nearly 85.Footnote 7 A 65-year-old couple faces a 50% chance that at least one will reach age 92. "We need to be financially prepared for 100-year lives," says Cynthia Hutchins, director of Financial Gerontology at Bank of America. "That puts a spotlight on the savings you've built up since they need to last for that longer life."

Question: Can working in retirement increase the chance that I won't outlive my money?

There are a couple of key financial benefits of working in retirement. First, there's a greater likelihood that you can put off collecting Social Security. Until age 70, for every year you delay past your full retirement age — 66 or 67, depending on the year you were born — your benefit will rise by 8%.Footnote 4 So if you're thinking about starting to claim at 66 or 67, remind yourself that each year you can wait to claim will earn you an 8% "raise." By contrast, claiming your benefits three years before your full retirement age could cut your Social Security income by 30%.
Then there's this not-inconsiderable advantage: By generating income from a part-time job, you may be able to put off dipping into your retirement savings, allowing your investments more time to seek growth. When the time does come to draw down your savings, you may find that you can increase your spending rate as a result. Beginning withdrawals at a later age may enable you to create a bit more of a cushion, which could potentially allow you to pursue things you might not otherwise have been able to do, and perhaps also be able to give more to future generations.

Question: Is there any downside to the extra income?

Earning income in retirement could push you into a higher tax bracket — something you'll want to discuss with a tax professional. Once you reach age 65, a higher income can also affect your Medicare premiums.Footnote 5 And if you are already claiming Social Security, as much as 85% of your Social Security income could be subject to federal (and possibly state) income taxes.Footnote 6
Before taking on part-time work in retirement, think about consulting with a financial advisor and tax professional to help weigh all these considerations. And start that planning early, says Ben Storey, director, Retirement Research & Insights, Bank of America. "The time to do that is five to 10 years before retirement, and then revisit it as you approach retirement — and at any point when your circumstances change."

Next steps

Footnote 1 EBRI and Greenwald Research, "2023 Retirement Confidence Survey."

Footnote 2 BMC Public Health, "Is working in later life good for your health? A systematic review of health outcomes resulting from extended working lives," July 2021.

Footnote 3 Behavioral Sciences, "Can Post-Retirement Work Always Prevent Depression?" June 2023.

Footnote 4 Social Security Administration, "Retirement Benefits, Delayed Retirement Credits," accessed November 20, 2022.

Footnote 5 Social Security Administration, "Premiums: Rules for Higher-Income Beneficiaries," accessed November 20, 2022.

Footnote 6 Social Security Administration, "Income Taxes and Your Social Security Benefit," accessed November 20, 2022.

Footnote 7 Mortality in the United States, Centers for Disease Control and Prevention, August 8, 2022.

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