What Happens If You Work After Retirement?

U.S. bank

The golden years of retirement are something that most workers look forward to with a great deal of anticipation and high expectations. However, for some people, retirement is not all it's cracked up to be. Many type A personalities have a hard time adjusting to a life without a schedule, deadlines and responsibilities. Retirement can also be quite boring for people who really enjoyed their jobs or never developed outside hobbies. Luckily, there's no law against working in retirement--just some issues to be aware of if you decide that a retirement job is right for you.

Income

Income is one of the main reasons people choose to work after retirement; many people have not saved adequately to support their desired lifestyle or find that social security does not provide enough income to meet their needs. Working, even if it's just a part-time job, can help bridge the monetary gap.

Health Insurance

Health insurance is a huge concern for everyone in the United States but particularly those who wish to retire before they are eligible for Medicare (age 65). Working in retirement often provides a significant advantage if your employer offers health insurance. This can also be advantageous for those who do qualify for Medicare, because the secondary coverage will cover costs that Medicare does not.

Social Security

If you have reached full retirement age (age 66 years for workers born between 1943 and 1955), your benefits will not be reduced by working in retirement. However, if you are younger than full retirement age, your social security benefits will be reduced temporarily. You can avoid this by electing not to receive your social security benefits until you have reached full retirement age.

Savings

Working during retirement does not affect your ability to withdraw money from your retirement savings accounts, nor does it affect the rules governing withdrawals. Minimum distribution requirements still apply. You may continue to contribute to tax-advantaged retirement accounts as well, even though you may be required to withdraw from them simultaneously.

Taxes

Earnings from retirement jobs are taxed as usual. Your social security and withdrawals from 401Ks also count as income, so income from a retirement job can bump you into a higher tax bracket if you earn a substantial amount. You should consult a financial advisor to determine a tax-optimized combination of income, social security and retirement account withdrawals.

References

• Social Security Administration