Last updated on April 24th, 2020
If you look around, you’ll see a lot of older people still working. A lot of these individuals have already retired, yet they choose to maintain a part-time job. Why? Well, it depends on the person, but for the most part, there are three reasons. First, it gives them a sense of purpose. Second, it allows them to interact with other humans. Third, it helps them out financially.
We’re not only talking about people in their 60s but even those in their 70s and 80s. This has become a common practice for millions of individuals. Experts from the Bureau of Labor Statistics predict that by 2026, roughly 30 percent of individuals between the ages of 65 and 74 will continue working, either part- or full-time.
If looking back to 1996, that’s a staggering increase from just 17.5 percent. Even more astounding is the number of people over the age of 70 who’ll choose to work part- or full-time. The amount will jump from 4.7 percent reported in 1996 to 10.8 percent in the year 2026. Think about that for a minute, that’s more than double the number of workers in their 70s.
Important Considerations for Retirees
Since this trend is growing, and quickly, it’s vital for any aging American to factor in some things. If you’re in this category, you need to understand how the additional income will affect your retirement.
Leading financial advisors tell people that, if they’re concerned that their retirement savings won’t be enough to live on as they get older and any part-time income won’t reduce the amount of money that they withdraw by much, then working makes perfect sense.
Simply put, going back to work part-time can be advantageous for retirees. Even for those who aren’t quite 100 percent sure their retirement plan is strong, working 20 hours or so a week might be a good idea. That additional income will reduce what they need to take out of their retirement savings.
The goal, if at all possible, is to leave your retirement funds alone. Then work either part- or full-time as long as possible. That way, you can live off your current income while giving your retirement savings extra time to grow. In the long-run, this could pay off substantially.
The mere fact that working part- or full-time lessens the impact on the retirement funds is outstanding. Remember, you don’t have to earn a lot of money for this to prove beneficial. Even a small amount of income can make a significant difference long-term.
Dealing with Social Security
For anyone who reached the legal retirement age as dictated by the US Government, and receives Social Security benefits, the Social Security payments they receive can be reduced if they make too much money. In 2020, a person would lose $1 in Social Security payments for every $2 earned over the amount of $18,240.
With Social Security, you have two options. You can take it at age 62, which many people do, or wait until you reach age the full retirement age based on the year you were born. The thing to keep in mind is that by waiting, you’ll receive a bigger check from the government each month.
Something else: the reduction in benefits can happen at any time, usually when unexpected. Even worse, the government can take their cut all at once. For instance, let’s say you made $10,000 over the $17,640 cap within a year.
After reviewing your income tax return, the Social Security Administration discovers the $10,000 income. Rather than take small amounts out over time, it’ll completely stop your benefits until you’ve paid the $10,000 back. As imagined, that would put a lot of people’s lives in turmoil.
However, once you reach full retirement age, that money will come back to you, just not all at once. Instead, you’ll receive an increased amount each month until the government’s paid you back the $10,000. Depending on the actual amount earned, it could take upwards of 15 years to recover that money. Again, you’ll only get it back in small increments as opposed to one lump sum.
Now, if you took your Social Security benefits early at age 62 and still work, and you reached full retirement age in 2019, the amount deducted is $1 for every $3 earned. But in this case, that only applies after you make more than $46,920.
Facts About Medicare
Based on what you earn as total income, any extra money coming from part-time work could tack on more costs to your Medicare.
Quick note, people considered higher earners have to pay more money for both Medicare Part B and Part D. Once an individual earns $85,000 a year, they’ll begin paying higher premiums. For married couples who file joint income tax returns, the higher premiums won’t apply until they make $170,000 per year. At this time, fewer than 5 percent of Medicare recipients have to pay higher premiums.
To determine if you’re among those who would have to pay higher premiums, the US government will use your tax returns from the two previous years. It bases its decision on a combination of your adjusted gross income along with any tax-exempt interest income.
The Bottom Line
The trend of older Americans working part-time is likely to increase. If you have any concerns that your retirement savings aren’t going to be enough to live on, working part-time has some definite benefits. Primarily, you won’t have to dip into your retirement savings as much.
Many people don’t even know if they need to work part-time in retirement because they don’t have a retirement plan. For those who don’t want to pay a lot of money to a financial planner, you can do it yourself with great retirement planning applications such as WealthTrace or Personal Capital.
If you receive Social Security benefits or you’re on Medicare, you can also talk to a financial adviser to ensure you make all the right decisions. Sometimes the situation is too complex to do it yourself.