Are you ready to ‘unretire’?
Have you recently retired but are now thinking of going back to work? If so, you aren’t alone, as many people are choosing to “unretire.” But if you do reenter the workforce in some capacity, what opportunities might be available to you? And how will your renewed employment affect your financial outlook?
For starters, though, what reasons might motivate you to go back to work? For many people, the primary cause has been inflation, which has presented a huge challenge to retirees living on a fixed income. In addition, the volatile financial market of 2022 caused many people’s investment portfolios to decline in value — a real problem for retirees who needed to start selling investments to supplement their income.
But non-financial factors could also be driving you to un-retire. Like other retirees, you may miss the chance to use your work experience to engage with the world, and you may miss the social interactions as well.
In any case, if you do decide to rejoin the working world in some fashion, you may have several options. For example, if you enjoyed the work you did for your former employer, you might want to see if you could go back on a part-time basis. Or you could use your skills to join the “gig” economy by doing some consulting or freelance work in your former industry. You might also consider going to work for a nonprofit organization, as many of these groups lost employees during the height of the COVID-19 pandemic and are now facing labor shortages.
Going back to work, even part time, can improve your cash flow, which helps cover the
cost of regular expenses. Furthermore, the added income can possibly help you delay or reduce withdrawals from your investment accounts. And it’s important to increase the longevity of these accounts considering you may spend two, or even three, decades in retirement. (Once you turn 72, however, you will have to start withdrawing certain 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 limit in 2023 is $21,240. For each $2 earned over that amount, Social Security will deduct $1 from benefits. If you reach your full retirement age in 2023, the earnings limit is $56,520; Social Security will deduct $1 from your benefits for each $3 earned over this amount until the month you turn your full retirement age. But in all future years after you’ve reached your 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, though, that your earned income can potentially result in higher taxes on your Social Security benefits at any age.
Returning to work can be rewarding, both financially and emotionally. And you may get more out of the experience when you’re aware of the issues involved.