Working after retirement: 3 financial considerations

“Two of the biggest benefits of working past retirement are the sense of purpose it can provide and the chance to tackle passion projects,” says Ryan Peters, Senior Wealth Planner with U.S. Bank Private Wealth Management. “Finding a second career that you enjoy can help you reengage, stay active and reestablish the social bonds that may have drifted away once you retired.”

What to consider before starting a job after retirement

Peters tells recent retirees to take an introspective look before signing up for a post-retirement occupation, mainly because there will be a time and energy commitment involved. If world travel and leisure time were your main goals during retirement, for example, signing up for a full-time position probably won’t align well with those aspirations.

Peters shares the story of a client who had just retired and then signed on to help with a charitable foundation. “She took on a role that wound up being a major obligation that required quite a bit of time and energy,” Peters recalls. “Her travel and family time goals both suffered as a result.”

To avoid this situation, Peters advises evaluating the obligations and responsibilities involved in a new role before accepting the position. “Taking this step would have paid dividends for the client and helped her avoid the issues that arose later down the road,” he adds. “She was obviously dedicating her time to a good cause, but she had to sacrifice much more than she originally anticipated.”

Key factors to consider for working after retirement

Many retirees want roles that allow them to try something new, make a positive social impact or simply stay active and engaged. If you’re interested in continuing to work after retirement, consider these factors.

1. Working after retirement can bring in more income.

While many people seeking jobs after retirement don’t need additional income, it can still be an advantage, especially if the extra income means you can hold off on collecting Social Security or withdrawing from your retirement accounts.

Delaying Social Security benefits until age 70 can increase your monthly benefits. While you can start collecting Social Security at 62, your benefits increase if you wait until you reach full retirement age (65) and continue increasing until you hit the maximum retirement age at 70. Your benefit amount increases by 8% each year you delay receiving it up to age 70.

The same scenario applies to your own retirement accounts. Individuals born before 1960 must take required minimum distributions (RMDs) by age 73 while those born after 1960 must take them by age 75. “The longer you leave funds in your tax-deferred accounts,” says Peters, “the more they can grow through compound interest and market growth.”

2. Working after retirement comes with financial and tax implications.

There are other financial factors to consider, aside from continued income. If you’re younger than full retirement age and already collecting Social Security, for example, there’s a limit to how much income you can earn and still receive your full benefits.

If you are old enough to take RMDs from your retirement accounts, combining that income with income from your job could push you into a higher tax bracket. Consult with a financial professional to determine an individualized plan for receiving Social Security benefits and IRA distributions alongside additional income sources.

Any income increase may correspondingly increase your Medicare premiums and put you into a higher tax bracket than expected. “By delaying RMDs and Social Security benefits, you may be able to lower your taxes and Medicare premiums during your early years of retirement.”

3. Working after retirement doesn’t have to mean a full-time job.

It isn’t uncommon for people to transition into retirement over a period of years by continuing to work on a part-time basis or in a consulting role.

• Military personnel who retire after 20 or more years of service may choose to pursue employment or consultancy work.
• Nurses no longer desiring full-time hours can consider PRN status, which offers much more flexibility.
• The same is true of retired educators who may want to serve as substitute teachers.
• Retiring corporate employees often establish consulting relationships, in many cases with the same employer.

If you choose to continue working at least part-time, the income you’ll earn generates cash flow that allows you to preserve, and perhaps even add to, your retirement savings. It may allow you to delay taking Social Security and continue to earn credits to potentially enhance future Social Security payments.

“From both a personal and emotional standpoint, a part-time job can serve as a bridge when transitioning over to full retirement, versus just jumping into retirement cold turkey,” Peters points out. “It’s a way to adjust your lifestyle slowly rather than all at once, while also ensuring that you have some structure and routine in your daily life.”

10 questions to ask yourself before you commit to working after retirement

If working once you retire is appealing to you, you may be interested in a low-stress job after retirement that prioritizes satisfaction and fulfillment, such as tutoring, coaching youth sports or providing pet care.

Regardless of which career path you choose, there are 10 important questions that you should ask yourself before making the commitment:

1. Why do I want to work after retirement? Is it for financial security, emotional stability, social engagement, philanthropy, personal fulfillment, or all the above?
2. What type of work schedule am I willing to commit to?
3. What kind of work would I enjoy doing? Is there a passion project, a small business venture or job role you’ve always dreamed of tackling?
4. How will the work affect my desired retirement lifestyle? This is an important one that not everyone considers, and it’s especially critical if travel, family time and leisure were your top retirement goals.
5. Do I need income? Do you need income to meet your financial goals and if so, how will the income affect your tax obligation (e.g., the earnings could push you into a higher tax bracket)?
6. Will the income affect my retirement benefits? Any income earned could potentially reduce your Social Security benefits and/or pension payouts.
7. From a health standpoint, do I have the physical and mental capacity to handle the role?
8. Will the structure and purpose enhance my life, or will the stress and time commitment reduce my quality of life?
9. How will my decision to continue working affect my family?
10. How much flexibility do I need, and which work setting aligns best with my goals (in-office, remote work, hybrid work, etc.)?

The answers to these questions should help you develop a success roadmap for your post-retirement career. As you consider whether working after retirement is right for you or not, just know that it’s okay to explore and try different options. The benefit of being retired is that you don’t have to “stick it out” for years if it’s not right for you. When you do find the right thing, it can be fulfilling and joyful.

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