Believe it or not, many Americans choose to continue work in some regard during their retirement. It may seem oxymoronic, but having a part-time retirement job could be a viable method of generating more retirement income. Remember: if you’re generally healthy and suffer from no chronic illnesses, your life expectancy could be as high as 92+ years. This could be an issue for many retirees who only planned for a 20+ year retirement. So, continuing work to generate more income could be beneficial.
Although it may take some time away from your retirement hobbies, there are quite a few benefits to continuing work. A retirement job may allow you to delay dipping into your savings. Which, in turn, may give you more time to save up for retirement. In the case of some types of retirement plan accounts, older workers are eligible to contribute more money than younger people. Additionally, assuming you’re past full retirement age, you may be able to begin taking Social Security benefits while also receiving income from working. Or, you may want to delay taking Social Security benefits in order to get more out of them later on.
Today, we’re going to dive into the various reasons why you may want to consider continuing to work during retirement. In order to make the most of your retirement job, you should:
Delay 401(k) Withdrawals
Traditional 401(k) and IRA distributions are typically required after you turn 72, and income tax is due on each withdrawal. These are called required minimum distributions (RMDs). However, if you continue working after reaching age 72 and don’t own 5% or more of the company you work for, you might be able to continue to defer withdrawals from your plan. This can be done until April 1st of the year you retire. You will still need to take RMDs from 401(k) and IRA plans from previous employers.
Make Catch-Up Contributions
Workers aged 50 or older are eligible to make “catch-up” contributions to their retirement accounts. This will qualify them for a bigger tax deduction. Older employees can save up to $7,500 more than younger ones, totaling $30,500, in their 4o1(k) plan. Making a $7,500 catch-up contribution to a 401(k) plan could save you up to $1,800 in taxes if you are in the 24% tax bracket. IRAs will also allow older workers to make catch-up contributions, worth an additional $1,000 per-year.
Boost Your Social Security Earnings
Social Security payments are calculated based on the 35 years of your career during which you earned the most. If you earn a higher salary now than you did earlier in your career, you may be able to boost your Social Security payments going forward. If you file for benefits and then continue to work or get a retirement job, those earnings will result in a recomputation, as long as they replace one your years of earnings in the 35-year calculation. This strategy is especially useful if you haven’t yet worked for 35 years and have had one or more zero-earning years factored into your benefit calculation. The Social Security Administration will automatically adjust your benefit if your additional earned income from your retirement job qualifies you for higher Social Security payments.
Consider Delaying Social Security Payments
If you continue working into your 60s and still earn enough to pay the bills, you may be able to delay Social Security benefits. We would actually recommend this, because monthly benefit payments are increased for each month you wait to start collecting benefits. In other words, the longer you wait, the bigger the benefits will be later down the line. This caps after age 70, however, so you should begin taking benefits by then. You have no reason to keep waiting. These higher payments last for the rest of your life, and can be passed on to a surviving spouse who gets a lower payment. Your Social Security statement will give you a personalized estimate of how much you will receive if you begin Social Security payments at various ages.
Sign Up For Medicare–But Watch Out For Higher Medicare Premiums
You will become eligible for Medicare starting at age 65, regardless of your employment status. Remember to sign up for Medicare during the seven-month initial enrollment period. This period begins three months before the month you turn 65, and ends 3 months after that month. The government adds a late-enrollment penalty to your Medicare Part B and D premiums if you sign up too late. And, unfortunately, the higher premiums for late enrollment will last for the rest of your life.
If you continue working after turning 65 years old and receive group health insurance through your employer, you will need to sign up for Medicare within eight months of leaving the job or the health plan in order to avoid a penalty.
However, having a retirement job could result in more expensive Medicare premiums. If you earn more than $103,000 (that’s if you’re single, it’s $206,000 if you’re married), you will have to pay higher monthly rates for both Medicare Part B and D. In 2024, your costs for Medicare Parts B and D are based on the income of your 2022 tax return.
Find a Better Work/Life Balance
Obviously, most retirees don’t want to keep working full-time. But, you may be able to either gradually reduce your hours at your current job and slowly phase into retirement, or take a break to relax for a while before getting a new part-time retirement job. Most older workers want a more flexible schedule in order to properly enjoy their retirement, so you may be able to find a temporary or seasonal job. This may allow you to earn additional income while also giving you far more time to enjoy your hobbies and spend quality time with loved ones. Furthermore, many jobs now allow you to work from home, which could further reduce stress.
Learn more about the benefits of working into retirement here.