Many Americans, believe it or not, choose to continue work in some capacity during retirement. Obviously, we don’t mean continuing work full-time. That wouldn’t be retirement. But, for those who are generally health with high life expectancy, having a part-time or seasonal retirement job may be a good tactic for generating more retirement income. You could live past 90, remember. This might be an issue for retirees who only planned for their retirement to last around 20 years. If that includes you, continuing work may be something you want to consider.
There are quite a few benefits to having a retirement job. It 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 plan accounts, older workers are eligible to contribute more money than younger ones. 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 eventually get more out of them. Today, we’re going to dive into the various reasons why you may want to consider a retirement job. In order to make the most of working in retirement, you should…
Delay Your 401(k) Withdrawals
Traditional IRA and 401(k) plan 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 reach age 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 account. 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 and up are eligible to make “catch-up” contributions to their retirement accounts. This will qualify them for a bigger tax deduction. Older workers can potentially save $7,500 more than younger ones, totaling $30,500, in their 4o1(k). Making a $7,500 catch-up contribution to your 401(k) could save you up to $1,800 in taxes if you’re 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 Benefits
Social Security payments are calculated based on the 35 years of your career during which you earned the most income. So, if you earn a higher salary now than you have earlier in your career, you may be able to boost your Social Security payments. 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 of those years of earnings in the 35-year calculation. This can also be done if you haven’t yet worked for 35 years–if you have 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 benefits.
Consider Delaying Social Security Payments
If you continue working into your 60s and earn enough to pay the bills, you may want to delay taking Social Security benefits. This is because your monthly benefit payments are increased for each month you wait to start benefits–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 they 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 money you will receive if you begin Social Security payments at different ages.
Sign Up For Medicare
You will become eligible for Medicare starting at age 65, regardless of your employment status. However, it’s crucial that you remember to sign up for Medicare during the seven-month initial enrollment period. This period starts three months before the month you turn 65, and ends 3 months after that month. If you sign up too late, the government will add a late-enrollment penalty to your Medicare Part B and D premiums, resulting in higher premiums that 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 within eight months of leaving this job or the health plan in order to avoid the penalty.
However, it’s important that you know 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 Parts B and D. For 2024, your costs for Parts B and D are based on the income of your 2022 tax return.
Find a Better “Work/Life Balance”
Obviously, most people 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 from work only for a while, and then get 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 want 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 than your full-time job did. Furthermore, many jobs now allow you to work from home.
Learn more about the benefits of working into retirement here.