Have you just retired but are now thinking of going back to work? If so, you’re not alone, as many people choose to “opt out.” But if you re-enter the workforce in some capacity, what opportunities might be available to you? And how will your new job affect your financial prospects?
For starters, though, what might motivate you to return to work? For many people, the main cause was inflation, which presented a huge challenge for retirees living on a fixed income. Additionally, the volatile financial market of 2022 has depressed the value of many people’s investment portfolios – a real problem for retirees who needed to start selling investments to supplement their income.
But non-financial factors could also cause you not to retire. Like other retirees, you may miss the chance to use your work experience to engage with the world, and you may also miss the social interactions.
In any case, if you decide to join the world of work in one way or another, several options are available to you. For example, if you liked the job you did for your former employer, you might want to see if you could come back part-time. Or you can use your skills to join the gig economy by doing consulting or freelancing in your old industry. You might also consider going to work for a non-profit organization, as many of these groups lost employees during the height of the COVID-19 pandemic and are now facing labor shortages.
Returning to work, even part-time, can improve your cash flow, which helps cover the cost of regular expenses. Plus, the extra income may eventually help you delay or reduce withdrawals from your investment accounts. And it’s important to increase the longevity of these accounts given that you could spend two or even three decades in retirement. (Once you turn 72, however, you’ll need to start withdrawing some amounts from your 401(k) and traditional IRA.) But your earnings can affect another source of your retirement income — your Social Security benefits. .
If you return to work before your “full” retirement age, which is likely between 66 and 67, the Social Security earnings ceiling in 2023 is $21,240. For every $2 earned over that amount, Social Security will deduct $1 from benefits. If you reach full retirement age in 2023, the earnings cap is $56,520; Social Security will deduct $1 from your benefits for every $3 earned above this amount until the month you reach full retirement age. But in all the years to come after reaching full retirement age, you can earn as much as you want without losing any benefits. Social Security will then recalculate your payments to give you credit for the months your benefits were reduced or withheld due to your excess earnings. Be aware, however, that your earnings from work can potentially lead to increased taxes on your Social Security benefits at any age.
Returning to work can be rewarding, both financially and emotionally. And you can get the most out of the experience when you are aware of the issues involved.