A 2021 survey by Natixis Investment Managers concludes that 42% of savers worry they won’t have the option to retire. Notably, the group behind that percentage includes retirement savers with $100,000 to $450,000 in investable assets — people who’ve already made headway building their savings. The percentage could be much higher among those who have less than $100,000 on hand.
The logical solution for underfunded retirement savers is to keep on working. If you’ve dreamed of retirement as carefree days filled with hobbies and quality time, the idea of continuing to work may be hard to stomach. There are definitively drawbacks to working in retirement — but there are positives, too.
You can make the right plan for your senior years by evaluating both sides, as objectively as you can. Start with this list of three pros and two cons of working in retirement.
Pro: The income helps your savings last longer
Your working income will reduce your dependence on retirement withdrawals. Ideally, you’d continue covering your living expenses from your pay, and keep your savings invested. The longer you stay invested, the more growth potential you have.
Pro: You’re less likely to get bored
In 2019, TD Ameritrade asked 2,000 adults aged 40-79 what would motivate them to return to work after retiring. Sixty percent of those who hadn’t yet retired said they’d go back to work to avoid boredom. Among those who’d already returned to work, 67% cited boredom as their motivation for returning to the workforce.
Boredom is a real problem for retirees. As it turns out, the carefree life can lack structure and purpose. The right job can provide both, along with social interaction and mental engagement.
Pro: You may get a higher Social Security benefit
If working in retirement allows you to delay Social Security, your benefit should be higher as a result. When you put off your Social Security benefits, you forgo income upfront in exchange for a larger monthly check later.
This benefit increase hinges on your Full Retirement Age (FRA). FRA is the age you qualify for your full benefit based on your earnings history. (Assuming you were born after 1942, your FRA is between 66 and 67. Find yours by creating an account at my Social Security).
Claim Social Security before FRA and your full benefit is reduced by up to 30%. Claim after FRA and your full benefit is increased by up to 32%.
Con: You may get a (temporarily) lower Social Security benefit
If you retire and claim Social Security before your FRA, you are subject to income limits. Exceed those income limits and the Social Security Administration (SSA) will trim back your federal retirement benefits.
The effect on your Social Security income could be significant. In 2021, the income limit is $18,960. For every $2 you earn above that limit, the SSA reduces your benefit by $1.
You’ll have more leeway to earn in the year you reach FRA, however. In that year, the 2021 income threshold is $50,520. For every $3 you earn above that higher limit, your benefit will drop by $1.
Once you reach FRA, these income restrictions fall away. You can work and receive full Social Security benefits, too.
Con: You’ll have less time for other pursuits
Perhaps the biggest drawback of extending your career is the demand it places on your time. Hours spent at work are not available for visiting loved ones or pursuing hobbies.
You might be able to improve your work-life balance with a part-time job. Another option is a paid opportunity that incorporates a hobby or a involves a cause that’s important to you.
Working in retirement: some good, some bad
Working in retirement may not be ideal, especially if you don’t love your current job. But it’s hard to argue against the financial benefits. Your savings balance can continue to grow. And, if you delay your Social Security, your federal retirement benefit will increase, too.
On the other hand, if you claim Social Security early, continuing to work could be counterproductive. You might see your Social Security benefit shrink if you make too much money.
The non-financial factors associated with working in retirement are as important as the financial ones. Only you can decide how much free time you want in your senior years, and whether that free time is more valuable than the financial benefits of working.