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Monday, December 2, 2019

Working During Retirement - The New Oxymoron

A Merrill Lynch study found that 47% of  people age 50 or older who identified as "retired" work or  plan to work during their retirement. 

It is no surprise that as people live longer, the age of what people think of as the "retirement age" has increased.  Not that long ago (depending on what long means to you) the average retirement age was seen as being between 62 to 65 but now it's typically between 65 and 69 on average.

But it isn't just increased longevity that is extending the working years. The financial crisis of 2008, increase in the cost of living, caring for elderly parents and medical expenses play their role too.

Many people are still reeling from what happened in late 2008. And for those who panicked at that time and got out of stocks and never got back in, they locked in losses and missed the long recovery. This may account for a much smaller nest egg than anticipated.

For those who are at risk of outliving their money, one solution has been to work a few more years. Working longer, even on a part-time basis, affects your retirement plan in a number of ways.
  • You can defer claiming your Social Security until you are either at full retirement age (this varies depending on when you were born) or by waiting until you are 70 to boost your benefit by 8% a year. Be aware the increase ceases at age 70 so no need to defer any longer at that age.
  • Earning income allows you to be a little less dependent on your savings and retirement accounts. Taking a smaller draw-down  may provide the opportunity for continued growth of your assets as they remain invested.
  • You may be eligible for medical benefits through your employer which could save you thousands of dollars in medical expenses.
  • Perhaps you can contribute more to a 401(k), IRA or other retirement savings account.

Working during retirement can add other benefits too as it is not always only about the money. Getting up and going to work gives some people a reason to be out in the world and offers social interaction. The added structure to your day can help with self-esteem, boredom, loneliness and lack of purpose. 

Keep in mind, if you have already starting taking your social security before your designated full retirement age and you are working, it can hit your tax return pretty hard. Your benefits are reduced by $1 for every $2 that you earn over the annual limit which for 2019 is $17,640. However, once you reach your full retirement age, there is no limit on the amount of money you can earn and still receive your full Social Security retirement benefit. 

Even better, maybe your new "retirement career" will be a job where you can use your knowledge, skills and experience while doing something you always wanted to do! I plan on working in a greenhouse. What do you want to do?