Pros and Cons of Working in Retirement
Whether you need money, want to stay mentally active or enjoy the social interaction of the workplace, here are some of the issues to consider when deciding to work in retirement.
By Cameron Huddleston, Contributing Editor, Kiplinger.com
October 22, 2003
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It didn't take long for Jerry Terry to realize retirement wasn't for him. Just three months after retiring in 2000 at age 60, Terry went out to pick up a battery for his wife's car and came home with a part-time job.
"My wife always says I'm the Energizer bunny -- always have to be doing something," says Terry, who now is 63.
The part-time job at Advanced Auto Parts turned into full-time, more hours than Terry wanted. So he hit the want ads again. Eventually he found the perfect job for someone who wanted to continue working but still have time for family, fishing and travel.
Terry now drives a delivery truck for Southern Tennessee Medical Center. He works seven days from 6 a.m. to 4 p.m. Then he's off seven days. Besides a decent salary -- but not enough to reduce his social security benefit -- Southern Tennessee also offers Terry a matching 401(k) and health insurance, which was a big draw. Terry has heart problems and was paying $130 a month for the skimpy coverage he was getting from his former employer. Now he pays less and gets much more coverage, including dental and vision.
To top it off, Terry is living his childhood dream of being a truck driver. And there's no pressure with this job -- unlike his pre-retirement job as a purchasing agent for Federal-Mogul. "It's a fun job, and I enjoy it," he says of his truck-driving gig. "Everybody I talk to wants it."
Terry plans to continue working at least two more years until he's 65 and can sign up for Medicare. Then, who knows -- if he stays healthy, he might just keep on working.
Back to work
Terry is among a growing cadre of early retirees heading back to work. In fact, the majority of people surveyed in a recent AARP study said their definition of retirement includes some form of work.
The desire to stay mentally active plays a major role in people's decision to work in retirement. But so do financial concerns. The AARP asked 2,001 individuals between 50 and 70 years old who work full- or part-time why they do it. The need for money was the primary response.
What is surprising, says AARP research director Jeff Love, is how much longer people plan to work. In 1997, AARP starting asking people at what age they planned to retire, and the response was mid- to late 60s. In the latest survey, almost half the respondents said they plan to work into their 70s or beyond. Although the need for money is a driving force, some people would continue to work even if they didn't need the money, Love says.
Baby boomers -- in their 50s now -- will have a harder time letting go of their jobs for the leisure of retirement because their identities are tied to what they do professionally, Love says. "Their jobs mean a lot to them." And they'll be physically able to work longer thanks to advances in medicine and healthier lifestyles that are extending life expectancies.
Whether you need money, want to stay mentally active or just like working and never plan to retire, there are pros and cons you should consider when deciding whether to work past the traditional retirement age of 65.
Pros
Money. If you delay retirement, think of it as another year you won't have to tap your nest egg and more time to rebuild a 401(k) or qualified retirement plan wrecked by the recent bear market. The extra money Terry makes pays for leisure activities, such as traveling. The couple hasn't had to tap their retirement savings yet, so it continues to accrue interest for their later years. They pay their bills with their social security income.
Health insurance. The good thing about working is that your new employer might provide group health coverage. It can be difficult to find a part-time job in retirement that offers health benefits, so be aware that you may have to work longer hours to qualify.
Mental activity. Working during what traditionally are seen as retirement years offers people a chance to continue their mental development, learn new things and contribute to society.
Community. Many people say their workplace is like their family away from home. Working in retirement allows individuals to be around other people and feel like they are part of a community.
Social security benefits. Because social security benefit payments are based on your top 35 earning years, you could rack up bigger monthly checks by staying on the job longer. And thanks to changes in the law, workers age 65 or older can claim full benefits even if they continue to work full-time. For more, see Uncle Sam Giveth, and Taketh Away.
Cons
Age discrimination. It still exists, and a 40% rise in claims from 1999 to 2002 proves it. Furthermore, 30% of respondents in the AARP study say age discrimination will be a barrier. Some employers may be biased about older Americans' ability to get up to speed if they have been out of the workforce for a while, says Deborah Russell, an AARP expert on aging worforce issues. That's why it is imperative for older people to keep their work skills up to date.
Pension problems. Returning to work after retiring could impact your pension, Russell says. Be sure to check with your former employer to make sure you won't be hit with any penalties or have any problems accessing your pension fund if you return to work, especially if you go back to your old employer. If you had chosen a lump-sum pension payment when you left your job don't worry, your funds would not be affected.
Taxes on social security benefits. By working and increasing your income, there's a greater chance that a larger percentage -- up to 85% -- of your social security benefits will be subject to income taxes. (See Uncle Sam Giveth, and Taketh Away.)
Less leisure time. Retirement traditionally is viewed as a time to stop working and start relaxing. If you had planned to spend time with friends and family, pursue other interests, travel or volunteer, you'll have less time to do these things if you work in retirement.
IRA withdrawals. If you have a traditional IRA and are working in retirement, you still will have to take required minimum distributions at 70½. These withdrawals count as income, which could mean more of your social security benefits would be taxed. If you did not retire, and just continue working, you may be able to get around this rule.
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