Many Americans make the choice to continue working to some extent during retirement. Having a part-time or seasonal retirement job could be an advantageous method for generating more retirement income. Remember: if you’re generally healthy and suffer from no chronic illnesses, you could live well into your 90s. This could be an issue for many retirees, who only planned for a retirement lasting around 20 years. So, continuing work as a means of generating more income could be beneficial.
A retirement job may allow you to delay dipping into your retirement savings. This, in turn, may give you more time to save up for retirement. For some types of retirement plan accounts, older workers are eligible to contribute more money than younger ones. And, assuming you’re past full retirement age, you may be able to start taking Social Security benefits while also receiving income from working. Or, you may want to delay taking Social Security to eventually get more out of them later down the line. Today, we’re going to dive into the reasons why you may want to consider a retirement job. In order to make the most of working during retirement, you should…
Delay Your 401(k) Withdrawals
Traditional 401(k) (and IRA ) distributions are typically required after you reach age 72, and income tax is due on each withdrawal. These are known as required minimum distributions (RMDs), and they could be a problem. But, if you continue working after turning 72 (and don’t own 5% or more of the company you work for) you may be able to continue deferring withdrawals from your account. You can continue delaying withdrawals until April 1st of the year you retire.
Make “Catch-Up” Contributions
Workers above age 50 are eligible to make “catch-up” contributions to their retirement accounts such as 401(k)s. This will qualify them for a larger tax deduction. Older workers can save up to $7,500 more than younger employees, totaling $30,500, in their 4o1(k) plan. Making a $7,500 catch-up contribution to your 401(k) plan could save you up to $1,800 in taxes, assuming you are in the 24% tax bracket. IRAs will also allow older workers to make catch-up contributions. These are worth an additional $1,000 each year.
Boost Your Social Security Earnings
Social Security payments are calculated using the 35 years of your career during which you earned the most income. Because of this, if you earn a higher salary now than you have earlier in your career, you may be able to boost your Social Security benefits. If you file for benefits and then continue to work or get a new retirement job, those earnings will result in a recomputation. Provided, your earnings during this year 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, and 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 now.
Consider Delaying Social Security Payments
If you continue work into your 60s and earn enough to pay the bills, you may want to delay taking Social Security benefits yet. We recommend this because your monthly benefit payments are increased for each month you wait to start benefits. So, the longer you wait, the larger 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. There’s no reason to delay payments further after that. These higher payments will last you the rest of your life. Additionally, they can be passed on to a surviving spouse who gets a lower payment. Your Social Security statement can give you a personalized estimate of how much money you will receive assuming you begin Social Security payments at different ages.
Sign Up For Medicare–But Watch Out For Higher Premiums
You will become eligible for Medicare starting once you turn 65. You’re able to start Medicare regardless of your employment status, so you can start even if you’re still working in some capacity. Remember, however, to sign up for Medicare during the seven-month initial enrollment period. This window begins three months before the month you reach 65, and ends 3 months after the month you turn age 65. If you sign up too late, then the government will add a late-enrollment penalty to your Medicare Part B and D premiums. And, unfortunately, the higher premiums for late enrollment will last for the rest of your life. So, it’s very important to sign up on time.
However, it’s also important to note that having a retirement job could potentially result in more expensive Medicare premiums. If you earn above a certain amount–$103,000 if you’re single, $206,000 if you’re married–you will have to pay higher monthly rates for both Medicare Part B and D. For 2024, your costs for Medicare 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 continue working full-time the rest of your life. But, you may want to consider slowly reducing your hours at your current job to phase into retirement, rather than stopping all at once. Or, you may take a break to relax for a while, and then start a new part-time retirement job. Obviously, many older workers want a more flexible schedule in order to properly enjoy retirement. For this reason, you may want to find a temporary or seasonal job. This could allow you to earn additional income while also having time to enjoy your hobbies and spend quality time with your friends and family. Additionally, many jobs now allow you to work from home. This eliminates the stress of having to commute to work every day, and could give you even more time to spend your retirement as you choose.
Learn more about the benefits of having a retirement job here.