Believe it or not, many Americans choose to continue working in some capacity during retirement. It may seem oxymoronic, but having a part-time retirement job could be a viable tactic for generating more retirement income. Remember: for a generally healthy person suffering from no chronic illnesses, their 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. If this includes you, continuing work to generate more income could be beneficial.
To be fair, it may take some time away from your retirement hobbies, but there are quite a few benefits to continuing work. A retirement job may allow you to delay dipping into your retirement savings. Which, in turn, may give you more time to save for retirement. In the case of some types of retirement plans, older workers are eligible to contribute more money than younger people. Furthermore, assuming you’re past full retirement age, you may be able to begin taking Social Security benefits while also receiving income from work. Or, you may want to delay taking Social Security benefits in order to get more out of them later on. Keep reading to learn more. Today, we’re going to dive into the various reasons why you may want to consider continuing 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 reaching age 72, and income tax is due on each withdrawal. These are known as required minimum distributions (RMDs). However, if you continue working after turning 72 (and don’t own 5% or more of the company you work for) you may be able to continue to defer withdrawals from your plan. This can be done until April 1st of the year you retire. And, you will still need to take RMDs from 401(k) and IRA plans from previous employers.
Make Catch-Up Contributions
Workers aged 50+ are eligible to make “catch-up” contributions to their retirement plan accounts. This will qualify them for a bigger tax deduction. Older workers 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 also allow for catch-up contributions for older workers, worth an additional $1,000 per-year.
Boost Your Social Security Earnings
Social Security payments are calculated based on 35 years of your career during which you earned the most income. If you earn a higher salary now than you did earlier in your career, you may be able to boost your Social Security payments moving forward. If you file for benefits and then either continue to work or get another retirement job, those earnings will result in a recomputation, as long as they replace one of your years of earnings in the 35-year calculation.
This strategy is especially advantageous 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, assuming your additional earned income from your retirement job qualifies you for higher Social Security benefits.
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 taking Social Security benefits. We would actually recommend this, considering monthly benefit payments are increased for each month you wait to start benefits. In other words, the longer you wait, the bigger the benefits will be waiting for you later down the line. This caps after age 70, however, so you should go ahead and start taking benefits by then. 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 may give you a personalized estimate of how much you will receive if you begin Social Security payments at different ages.
Sign Up For Medicare–But Watch Out For Higher Medicare Premiums
You will become eligible for Medicare starting once you turn 65, regardless of your employment status. Remember, however, to sign up for Medicare during the seven-month initial enrollment period. This window begins three months before the month you turn 65, and ends 3 months after the month you turn 65. If you sign up too late, the government adds a late-enrollment penalty to your Medicare Part B and D premiums. 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 job, you will need to sign up for Medicare within eight months of leaving this job or the health plan in order to avoid a penalty.
However, it’s important to note that having a retirement job could result in more expensive Medicare premiums. If you earn more than $103,000 (if you’re single, $206,000 if you’re married), you will have to pay higher monthly rates for both Medicare Part B and D. For 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. However, you may choose to either gradually reduce your hours at your current job, slowly phasing into retirement. Or, you may instead take a break to relax for a while before getting a new part-time retirement job. Most older workers are going to want a 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 some additional retirement income while also giving you far more time to enjoy your hobbies and spend quality time with friends and family. Additionally, many jobs now allow you to work from home, which could further reduce stress.
Learn more about the benefits of working into retirement here.