Working in retirement?  Here's why it's great - and why it really isn't

Working in retirement? Here’s why it’s great – and why it really isn’t

(Dave Kovalski)

According to a study released last summer by the American Association of Retired Persons (AARP), some 42% of American retirees are either working into retirement or planning to do so, while 57% of those approaching retirement plan to continue work.

What is driving this trend? Let’s take a look at some of the reasons people are working longer – and some things to consider when making that decision.

Work to live (on retirement)

For many people, working in retirement is a necessity. This AARP survey indicates that 55% of those who work in retirement do so for financial reasons. This may be because they were forced into early retirement due to layoff, company reorganization, or to take care of their health or that of a loved one, among other things. reasons. Some may feel they don’t have enough, given rising inflation and the rising cost of living.

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Another reason is that many people lead healthier lives and live longer, so they want to stay active and keep working. At this point, the Allianz Life Insurance Retirement Risk Readiness study, published in January, indicates that 56% of those close to retirement say they plan to work well past 66 to keep busy.

Image source: Getty Images.

A third possible reason is the rise of the gig economy, where many companies rely on freelancers and contractors more than ever, and they value the experience and expertise of post-retirement workers in these roles. And retirees love them because they allow them to work as much or as little as they want.

But keep in mind that perception isn’t always reality, as the 2022 Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI) and Greenwald Research points out. This survey found that while around 40% of workers expect a gradual transition to retirement, meaning they will continue to work part-time, only around 17% actually have a gradual transition. In other words, some 73% of respondents said their retirement was a full-time break.

The pros and cons of working in retirement

The benefits of working in retirement are, of course, making ends meet if you need the extra money. Also remember that you can downsize your home or move to a less expensive area to increase your nest egg or reduce your living expenses.

But if you don’t have pressing financial worries, working is a great way to stay active and engaged. It can also help you wait longer to take Social Security until full retirement age (FRA), which is 67 for those born in 1960 or later, 66 for those born in 1954 or at the beginning, and 66 and over for those born between 1955 and 1960, depending on the year. Likewise, it can allow you to withdraw less from employer-sponsored plans or investment accounts until you need it later in life or want to give more to your heirs.

But there are a few things to consider. If you work and plan to collect Social Security, this could reduce your Social Security payments. This is because there are income caps for the years before your FRA.

So this year, if you earn more than $19,560 in the years before your FRA, the Social Security Administration will deduct $1 for every $2 you earn over that limit. In your FRA year, you can earn $51,960, but if you earn more than that, the SSA will deduct $1 for every $3 you earn above that number. In this second case, however, you only take into account the income of the months preceding your FRA. When you hit your FRA, there is no cap, so you can take your social security at that time and earn as much as you want.

Of course, if you have goals for retirement – whether that means traveling the world, enjoying your hobbies, relaxing and socializing with friends, spending time with family, or buying your dream house – working will get in the way of your style. But again, a side gig where you create your own hours might be the best of both worlds, allowing you to work and play.

Ultimately, you want to be financially secure in retirement so you can work if you want to, but you don’t have to work if you don’t want to work. And that can be achieved by consulting a financial advisor to develop a strategy or by taking action before you retire to ensure you have options.

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