3 advantages and 3 disadvantages of working in retirement

Working in retirement may seem like a bit of an oxymoron, but it is a reality for many seniors who cannot afford to leave the workforce entirely or just don’t want to. It is not inherently good or bad. Like everything, it depends on your personal preferences and your financial situation.

Here’s a quick look at some of the top pros and cons of continuing to work during retirement so you can decide if it’s the right decision for you.

Three advantages of working in retirement

Here are some of the top reasons seniors choose to continue working in retirement.

1. You won’t run out of savings so quickly

Delaying retirement or working part-time until retirement is a popular strategy for those who haven’t been able to save as much as they would have hoped during their youth. The logic is pretty straightforward to follow: A job gives you a constant stream of income, so you don’t need to withdraw your personal savings so quickly. Your savings will continue to grow, allowing them to stretch further than they would if you were relying on them alone.

2. It can help ease boredom

Being at home in retirement is not for everyone. If you’re the type of person who needs a routine and a sense of purpose to be happy, working in retirement can provide that. Depending on what you choose to do, it can also provide more social interaction than if you weren’t working.

3. You may be able to delay the Minimum Required Distributions (RMD)

Minimum Required Distributions (RMDs) are mandatory minimum withdrawals that you must make from your retirement accounts, excluding Roth IRAs, starting in the year you turn 72. anything from your current pension plan if you continue to work after age 72. In this case, you can carry forward the RMDs from this retirement account until the year you left your job.

You are still free to withdraw funds from your retirement account if you wish, but if you are trying to minimize your tax bill and keep your savings invested longer, the ability to delay RMDs is a huge advantage of staying on. labor market.

Three disadvantages of working in retirement

Assess the above advantages against these potential disadvantages before deciding if working in retirement is right for you.

1. It is not a foolproof solution for a savings deficit

Working in retirement is a great way to supplement your personal savings if you are able to do so, but you are not always in control of your employment situation. If your business lets you go, or if you are injured or ill, you may have to leave the workforce for good, whether you can afford it or not. That’s why it’s important to prioritize saving for retirement while you’re young, even if you plan to continue working so that you have a cushion to fall back on if something goes wrong.

2. Doing what you love takes time

The most obvious trade-off of working in retirement is that it leaves you fewer hours in the day to do the things you love, which is often the primary goal of retirement. However, this may not be a major issue if you enjoy the job you do.

3. You could end up paying taxes on Social Security benefits

Working and claiming Social Security at the same time might require you to pay taxes on your Social Security benefits if your combined income – your Adjusted Gross Income (AGI), any non-taxable interest, and half of your benefits – is more than $ 25,000 if you are single or $ 32,000 if you are married.

You may be able to work around this problem by postponing Social Security benefits until you decide to stop working for good. Delaying benefits will also increase the size of your checks at least until you turn 70, so waiting to sign up could earn you more money in the long run. But deferring past 70 will only cost you, and it’s not worth doing just to avoid a slightly higher tax bill.

Find the right balance

Working in retirement doesn’t have to be all or nothing, and you don’t have to stay with the company you worked for until you retire. You can change employers, go part-time, or even start your own business if that’s what interests you.

It’s ultimately up to you to decide what type of work, if any, best fits your retirement goals. Weigh the pros and cons discussed above and feel free to re-evaluate your decision if your plans change by the time you retire.