Seniors choose to work in retirement for a number of reasons, and some people love it. But there are others who wouldn't dream of calling themselves retired while they're still earning a paycheck. Retirement is supposed to be the end of work, after all.
If you're not sure which camp you fall into, this list of pros and cons of working in retirement might help you make up your mind.
Pros of working in retirement
Some of the key benefits to working in retirement are:
1. You won't burn through your savings as quickly
A job usually brings a steady paycheck. This is reassuring, particularly to seniors who struggled to save when they were younger. Their salary can help cover their expenses while leaving some of their savings invested for longer. That could lead to more investment earnings, which could ultimately help them stretch their nest egg out over a few more years.
2. You could get more money from Social Security
There are several factors that influence how much money you get from Social Security, but two of the biggest are your income during your working years and when you sign up for benefits.
Working longer often leads to higher Social Security benefits, particularly for those who haven't worked at least 35 years already. The government bases your benefit on your average monthly income over your 35 highest-earning years. If you haven't worked this long, you'll have zero-income years factored into your benefit calculation. This can significantly reduce your checks. Working in retirement can help you avoid this.
It might also enable you to delay benefits. Every month that you delay Social Security increases your checks slightly until you reach your maximum benefit at 70. It's a smart play if you don't need the money and expect to have a reasonably long life, but those who don't believe they'll live long might be better off starting Social Security early.
3. You might be less bored
Some people prefer to have a job because it gives them a sense of purpose and enables them to socialize with others. If you have a lot of solo hobbies, a job could provide a nice change of pace. You don't have to work more than you want to, either. There are plenty of part-time jobs available.
Cons of working in retirement
These are some of the drawbacks:
1. You won't have as much time for hobbies
Just like right now, working means you have less time to devote to spending time with family or doing other activities you enjoy. For some, that's a deal breaker, but there are ways to get the best of both worlds. You could consider seasonal or part-time work to give you some income while still leaving you with more free time than you have right now for hobbies.
2. You could owe taxes on your Social Security benefits
The federal government taxes the Social Security benefits of people with high provisional incomes. Your provisional income is your adjusted gross income plus any nontaxable interest, and half your annual Social Security benefits.
Individuals with provisional incomes of $25,000 or more and married couples with provisional incomes of $32,000 or more could owe taxes on up to half their Social Security benefits. Individuals with provisional incomes exceeding $34,000 and married couples with provisional incomes exceeding $44,000 could owe taxes on up to 85% of their benefits.
It's possible to run into this issue even if you don't work, but working makes it more likely that this might occur. It could still be worth having a job in retirement, but you might want to think strategically about how much you withdraw from your retirement accounts this year. With careful planning, you might be able to keep your provisional income low enough to avoid taxes on your benefits. If not, you should know that this is a possibility and brace yourself for the bill.
3. You might be forced to retire early
Some seniors have every intention of continuing to work, but they end up retiring anyway due to an injury, illness, or family issue. This can be problematic for those who didn't save enough during their working years to cover all the costs of their retirement.
That's not to say that working in retirement is a bad strategy if you're behind on savings. If you're able to do it, it's a great approach. But a plan to work in your senior years shouldn't stop you from saving aggressively while you're younger.
It's ultimately up to you to decide whether working in retirement fits in with your vision of your senior years. But don't rule it out. You never know how your opinions could change between now and then. When you do your annual savings plan review, ask yourself about working in retirement again and be prepared to alter your plan if you change your mind.