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Why I Still Work in Retirement

As this author and many others have discovered, the additional income can help boost savings and increase financial, physical and emotional well-being

 

By Rodney A. Brooks

 

I WAS 62, WHEN MY FANTASY OF RETIRING EARLY became a reality. My company announced a round of buyouts, and when the offering email came around, I jumped at it. After 30 years on the job, it was time to begin a new chapter in my life, I thought.

 

“You should not be planning to live to 83 and 86, but rather to 90 or 95. That puts an enormous burden on the savings you’ve built up. You need it to last for that longer life.” 

—Surya Kolluri, managing director, Retirement Thought Leadership at Bank of America

As long-time empty nesters, my wife and I were in good shape financially. I could stay on her health insurance, and I was lucky enough to have both a pension and a well-funded 401(k). But I wouldn’t be eligible for full Social Security benefits until I turned 66, so I knew that for me to be able to enjoy the life I wanted in retirement, I’d have to continue to bring in some money. Fortunately, I already had a contract for a newspaper column, and I figured I could find other freelance writing gigs. Still, retiring early was scary.

 

Now, five years after my so-called retirement, I can say my post-retirement career has been a success. I have more time to enjoy myself and my family than I did when I worked full-time, there’s enough money coming in to allow me to explore new things and I have the stimulation and satisfaction of doing creative work that I love. In addition, I’m more confident that my assets will last my lifetime—and it’s possible that I may even have more to leave my loved ones someday. 

 

I’m not alone in my decision to work in retirement. Nearly a third of today’s retirees report collecting income from a job.1 And with companies increasingly adopting remote work as the new norm, the ability to do your job from anywhere—even your vacation home—could provide more incentive for people to continue working in retirement. If you’re considering doing so, discussing the following questions with a financial advisor could help you better understand what the extra income might mean for your finances.

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A three-dimensional dollar sign and tools on a drafting table. The text running over the image reads: The Finances of Working in Retirement. The caption below reads: If you’re considering earning income after you retire, ask your financial advisor and tax professional these questions.

If you’re considering earning income after you retire, ask your financial advisor and tax professional these questions.

A multi-color pie chart with the word “extra” written on the red piece. The text below the image reads: How can I make the most of the additional income I earn? The caption reads: Consider using it first to cover expenses so that you can delay drawing down your retirement assets. The extra money may also allow you to pursue new goals, such as philanthropy, or put you in a position to leave more for your heirs.

Consider using it first to cover expenses so that you can delay drawing down your retirement assets. The extra money may also allow you to pursue new goals, such as philanthropy, or put you in a position to leave more for your heirs.

A photo illustration of a Social Security card and a dollar bill. The text below the image reads: How will working in retirement affect my Social Security? The caption reads: Your benefits may be reduced temporarily if you work and collect Social Security before your full retirement age (66 or 67, depending on what year you were born.

Your benefits may be reduced temporarily if you work and collect Social Security before your full retirement age (66 or 67, depending on what year you were born).

A laptop on a desk with the word Medicare on the screen. The text below the image reads: Do I still need to sign up for Medicare? The caption reads: Review the Medicare rules carefully to make sure you won’t be penalized if you decide to delay signing up because your job offers benefits or you’re covered under a spouse or partner’s plan. Once you reach age 65, a higher income can affect your Medicare premiums.

Review the Medicare rules carefully to make sure you won’t be penalized if you decide to delay signing up because your job offers benefits or you’re covered under a spouse or partner’s plan. Once you reach age 65, a higher income can affect your Medicare premiums.4

A tax return form shown within a jigsaw puzzle. The text below the image reads: How could my income affect my taxes? The caption reads: Your earnings could push you into a higher tax bracket. And if you’re already claiming Social Security, as much as 85% of your Social Security income could be subject to federal (and possibly state) income taxes.

Your earnings could push you into a higher tax bracket. And if you’re already claiming Social Security, as much as 85% of your Social Security income could be subject to federal (and possibly state) income taxes.

Q: How long will I need my retirement assets to last?

At age 65, life expectancy for a man is 83; for a woman the same age, it’s nearly 86.2 A 65-year-old couple faces a 50% chance that at least one will reach age 92.  “You should not be planning to live to 83 and 86, but rather to 90 or 95,” says Surya Kolluri, managing director, Retirement Thought Leadership at Bank of America. “That puts an enormous burden on the savings you’ve built up. You need it to last for that longer life.”

 

Q: Can working in retirement increase the chance that I won’t outlive my money?

There are a couple of key financial benefits of working in retirement. First, there’s a greater likelihood that you can put off collecting Social Security, notes Merrill Financial Advisor Jenna Carroll. Until age 70, for every year you delay past your full retirement age—66 or 67, depending on the year you were born—your benefit will rise by 8%.3 Carroll recommends waiting until age 70, if you can. When clients want to start at 66 or 67, she tells them: “Listen, you're going to get a guaranteed 8% raise every year. Who is giving you an 8% raise?” Claiming your benefits three years before your full retirement age, by contrast, could cut your Social Security income by 20%.

 

Then there’s this not-inconsiderable advantage: By generating income from a part-time job, you may be able to put off dipping into your retirement savings, allowing your investments more time to seek growth. Because I don’t yet need to take withdrawals from my retirement savings, my investments have grown considerably in the five years since my “retirement.” 

“For a lot of my clients, working is not just about the money. You get to do something different— something you're very passionate about.” 

—Merrill Financial Advisor Jenna Carroll

 

You may also find that you can increase your spending rate as a result when you do begin to draw down your savings. Beginning withdrawals at a later age “enables you to create a little bit more cushion,” says David Koh, managing director, Chief Investment Office, Merrill and Bank of America Private Bank.  It also allows you to pursue things you might not otherwise have done, such as getting involved in philanthropy. “And you may be able to give more to future generations,” Koh adds.

 

Beyond the financial benefits, of course, there are other good reasons to consider working in retirement.  “For a lot of my clients, working is not just about the money,” notes Carroll. She points to one client who had been in the tech industry and became a substitute teacher. Another who loved music started working in a concert venue. “You get to do something different—something you're very passionate about,” says Carroll.

 

Q: Is there any downside to the extra income?

Earning income in retirement could push you into a higher tax bracket—something you’ll want to discuss with your tax professional. Once you reach age 65, a higher income can also affect your Medicare premiums.4 And if you are already claiming Social Security, as much as 85% of your Social Security income could be subject to federal (and possibly state) income taxes.5 Your financial advisor and tax professional can help you weigh these considerations. Start early. “The time to do that is 5 to 10 years before retirement,” says Kolluri.

 

Before accepting my buyout, I leaned heavily on my financial advisor, who assumed the roles of career counselor and psychologist, too. Now people ask me all the time, “When will you really retire?” I don’t have an answer. The truth is, I can’t imagine not working.

 

Rodney A. Brooks is a former deputy managing editor and personal finance and retirement columnist for USA TODAY. He is the author of two books on retirement and currently writes a retirement column for U.S. News & World Report.

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EBRI Retirement Confidence Survey 2020

2 Mortality in the United States, 2018, Centers for Disease Control and Prevention

3 Social Security Administration, “Retirement Benefits, Delayed Retirement Credits”

4 Social Security Administration, “Premiums: Rules For Higher-Income Beneficiaries”

5 Social Security Administration, “Income Taxes And Your Social Security Benefit”

 

Opinions are those of the author(s), as of the date of this document and are subject to change.

 

The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S” or “Merrill”), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation.

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