According to a recent survey by AARP, 70 percent of experienced workers said they planned to work at least part-time in retirement. Reasons range from the need for additional income to a desire to socialize and be around other people. If you are retired or soon to be and contemplating part-time work after you leave the full-time workforce, it’s a good idea to consider the pros and cons of a part-time retirement job before making a final decision.
Pros of a Part-Time Job
Working part-time in retirement has some definite advantages—both financial and emotional.
The first, and most obvious, is money. You may need to work to supplement retirement income or just want to work to pay for extras such as gas for your boat or high-end fabric for your quilting projects.
Social Security Benefits
Working during retirement may allow you to delay collecting Social Security benefits. The longer you delay, the higher your benefit (an additional 8 percent per year) up to age 70. Increased earnings may also raise your monthly benefit amount.
Delay Spending Your Nest Egg
Additional earnings could also allow you to delay spending down your retirement nest egg. If the market is friendly and you can slow or eliminate the drawdown, the result could be very helpful to your bottom line.
When you reach the age of 70½, you will be subject to required minimum distributions (RMDs) for any inactive 401(k) plans from former employers. However, if you consolidate previous plans with an available plan at your current employer, you delay having to take RMDs, and your investment can continue to grow as long as you keep working there.
Access Employer Benefits
Part-time employment can give you access to health insurance as well as to the aforementioned employer 401(k) and any employer match that comes with it. Not all part-time employment comes with benefits so if this is important to you be sure to ask when applying.
Staying Busy and Engaged
For many retirees, working in retirement is about more than making money. It’s about keeping active physically and mentally. It’s about staying in touch with people you’ve known and making new friends.
Trying a New Career
For others, working in retirement represents a chance for a new beginning. You may get enormous satisfaction going back to school to learn skills for a new career or turning a favorite hobby into a business.
Cons of a Part-Time Job
Before you jump back into the workforce, consider the potential downside of part-time employment.
Income Tax Impact
Additional income could bump you into a higher income tax bracket. This could be a problem if you will be taking distributions from a traditional 401(k) or IRA. Also, if you expected that retirement would put you in the 0 percent capital gains tax bracket but are pushed out of it by your job that could be costly as well.
Social Security Considerations
If you are collecting Social Security, but are not yet at full retirement age (66 or 67, depending on your birth date), you will temporarily lose part of your benefits if you are above the income threshold—$16,920 in 2017. After you reach normal retirement age, you will get those benefits back, and there is no further income penalty. However, earned income above a certain amount may subject part of your Social Security benefits to income taxes.
Tax Planning Moves Hindered
Certain tax planning moves, such as partial Roth IRA conversions and capital gains harvesting (also known as tax gain harvesting), can become more complicated and costly if you have too much additional income.
Effect on Your Pension
If you receive a pension from your former employer, post-retirement employment may have an impact on it. Before going back to work, check with your former employer to make sure this does not affect you.
RMDs from Traditional IRAs
If you have a Traditional IRA, you must take a required minimum distribution at the age of 70½. This is also counted as income. Combined with income from a part-time job, RMDs could affect your overall tax rate including taxes on Social Security benefits.
Possible Effect on Medicare
Part-time work at a job that offers health insurance could change your Medicare coverage. Typically, employer-provided healthcare pays first and Medicare pays second. This may or may not be a problem, but you should check with your employer so you know where you stand.
Going back to work has its own costs including clothing, gasoline, parking, meals and so forth. Take all the extra costs of going back to work into account to make sure you aren’t paying for the privilege of having a job.
Less Leisure Time and Flexibility
Finally, taking a part-time job means less time for leisure activities like travel, golf or hobbies. Make sure you don’t work so many hours that you eliminate free time.
Adding It All Up
Your finances and your readiness to go back to work are the most important factors to consider. Beyond that, carefully consider everything outlined above to make sure working will be a welcome addition to your lifestyle—not a source of emotional or financial pain. Don’t let part-time work evolve into a full-time job unless that’s what you really want. Above all else make sure you understand how your life will change when you go back to work part-time.