Employed in Retirement? Here’s Why That’s Wonderful… And Why It’s Actually Terrible


Working in retirement can be an excellent way to keep active and engaged while filling your days with structured activities and interaction with coworkers. Of course, money doesn’t hurt either. Every little bit counts, and money earned from work is money you don’t have to rely on Social Security or your savings to cover. Furthermore, there is some evidence that working longer hours may help people live longer lives.

All of these factors, and more, make working in retirement an appealing option for many people. Still, if you’re working not because you want to, but because you have to, working in retirement may not be as appealing as it appears on the surface. Here are four major reasons why working in retirement may not be all it’s cracked up to be.


No. 1: You might not be receiving any new Social Security benefits.

The amount of your Social Security benefit is determined by your highest 35 years of covered earnings. If you’re in your mid-60s or older and still working, chances are you’ve already worked for 35 years. As a result, you may be replacing lower-earning years with higher-earning years at best, but you may also be paying those taxes for no additional net benefit at all.

Social Security taxes can consume up to 12.4 percent of your earnings (half paid by you, half paid by your employer). That’s a lot of money to tie up in taxes for a program that no longer provides new benefits, but it’s exactly what you’ll face if you work in retirement.

No. 2: Your Social Security payment may be reduced.

Working while collecting Social Security while under your full retirement age – between 66 and 67 for those who haven’t reached it yet – can result in significant penalties. You could lose $1 for every $2 you earn above $19,560 per year. That’s a hefty penalty, and it generally makes it unwise to collect Social Security if you’re still working and under the full retirement age.

If you filed your claim early because you lost your job but later found another, you may be eligible for a do-over. You can withdraw your application and return every penny you’ve received within one year of claiming Social Security, allowing you to claim again later.

No. 3: Compounding is unlikely to help you all that much.

Working because you have to means your savings are insufficient to cover your expenses. While you should continue to work on increasing your nest egg, you should also recognize that compounding is no longer on your side once you reach retirement age.

The main issue with compounding is that money spent in the next five years does not belong in stocks. If you’re looking for a nest egg to cover your short-term expenses, higher-certainty short-term money won’t provide the same return potential as stocks. Furthermore, once you spend the money, it is gone. You’ll need to replenish it at some point by converting more of your higher-risk investments into lower-risk ones, which reduces the amount available to compound faster.

As a result, while you should continue to save money for when you do decide to retire, you should also focus on ways to reduce your structural costs. The lower your daily expenses, the easier it will be for Social Security and your savings to cover them when they become necessary.

No. 4: Because of income-based costs, your money may not go as far as you think.

Even if you are old enough that working while collecting does not result in a direct penalty, your Social Security benefit may be taxed if your income is high enough. If you’re single, a combined income as low as $25,000 can trigger Social Security taxes, and if you’re married filing jointly, the taxes begin at $32,000.

Furthermore, your Medicare Part B premiums are determined by your income level. Charges rise for singles earning more than $91,000 or married couples filing jointly earning more than $182,000. Higher costs and taxes may not seem so bad if you work because you want to, but if you work because you need the money, they simply make it more difficult to achieve financial freedom.

Begin now to prepare for a genuine retirement.

You have most likely worked for decades to provide for yourself and your loved ones by the time you reach retirement age. To make the most of your golden years, you need a strategy that allows your money to look after you. That kind of preparation takes time.


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Even if you’re past the point where you’d like to hang up your work boots for good, you can still take steps to secure your financial future. Still, the sooner you start, the more time you’ll have to make it a reality and enjoy the fruits of your labor while you’re young and healthy enough. So get started now to increase your chances of working in retirement as a choice rather than a requirement.

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