Question: I’m considering taking on a seasonal or part-time job in retirement. What are the benefits or drawbacks of this move?
Answer: For many, the traditional view of retirement is to quit working entirely. Some folks, however, continue with part-time work in retirement. This could be a choice or a necessity.
Whether it’s for personal, social or financial reasons, there are benefits and trade-offs to taking a semiretirement. Here’s more about the impacts of working a part-time retirement job.
A Retirement Job Can Reduce Strain on Savings
A stream of income from part-time work during retirement can significantly reduce the pull on your savings. If you’re concerned about depleting your retirement account too quickly, this can go a long way toward reducing that risk. The benefit is especially helpful during the first few years of retirement as it provides extra protection from sequence risk.
Working in Retirement May Offer Continued Group Health Insurance
If you don’t yet qualify for Medicare, continued employment could save you money on health insurance coverage. Some employers won’t cover part-time workers, but some do. You may even be able to negotiate to keep your health insurance as part of a phased retirement plan if you plan to remain with your preretirement employer.
A Job Can Help You Ease Into Retirement
If you’ve spent decades working, only to suddenly stop, the experience can be jarring. Given such a drastic change, some retirees struggle to adjust to retired life, feeling a lack of engagement or boredom.
A part-time job gives you something to stay connected to and can provide a sense of purpose while you figure out how you plan to spend your time in retirement.
Working Longer Can Increase Social Security Benefits
You may plan to start drawing your Social Security benefit as soon as you retire, but that isn’t always the best move. Waiting past your full retirement age to claim allows your monthly benefit to grow by 8% per year through delayed credits. You can continue to earn delayed credits until you reach 70.
If you otherwise need that money and can’t afford to delay, a part-time job may open that option. Instead of missing out, you would work part-time to make up for the Social Security benefit you aren’t receiving, then quit once you turn 70 and begin collecting your higher benefit.
A Retirement Job Can Potentially Increase Your Taxes
Working in retirement could increase a retiree’s tax bill beyond the direct tax liability on the part-time salary. The biggest impact typically has to do with the way Social Security benefits are taxed. Depending on a measure called your combined income, you must include anywhere from 0% to 85% of your Social Security benefit in your taxable income. Working increases your combined income, which could mean that more of your Social Security benefits become subject to income tax.
A Job May Temporarily Reduce Social Security Benefits
If you haven’t reached your full retirement age but have already started receiving your Social Security benefits, working part-time in retirement could reduce them depending on how much you earn. That reduction is only temporary and you will get those dollars back later, but it’s important to be aware of it so you budget appropriately.
A Retirement Job May Result in Less Flexibility
Of course, working part-time in retirement means you’ll still have some constraints on your schedule. This may not be a big deal to you, but it is nonetheless an important reality to anticipate. If your idea of retirement was to do what you wanted when you wanted, your part-time job will cut into that.
Bottom Line
Working part-time in retirement can be a rewarding experience and provide a nice financial cushion. While the downsides usually aren’t significant, just be sure to consider them when deciding whether semi-retirement is right for you.
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Ask a Financial Pro: Should I Work During Retirement? originally appeared on usnews.com
