According to a study sponsored in part by Bank of America and Merrill Lynch, approximately 50 percent of current retirees have worked during retirement or are considering it. Moreover, nearly three-quarters of pre-retirees over age 50 say that their ideal retirement would include paid work of some sort. It’s interesting to note that among them, 35 percent say the ideal scenario for retirement is part-time work.
Some folks may need the extra income. However, even high-net worth professionals who are more than prepared for retirement — financially speaking — also indicate that they’d like to work at least part time in retirement. For some, it’s a matter of maintaining social relationships and/or having intellectual challenges and responsibilities.
Unfortunately, some people retire earlier than they would like to, often a result of losing their jobs or just plain being unhappy with them. Others suffer from health conditions that make work unsustainable, while some find they have to quit in order to spend more time caring for loved ones.
And yet, even for caregivers and people with disabilities, there may be opportunities to work part-time. While there are challenges to working as we age, bear in mind the benefits to be gained as well.
Even for people who believe they have enough money saved for retirement, it never hurts to add more to the coffers. Those who work part time during retirement are less likely to drain their income each month, possibly using excess earnings to continue contributing to retirement investment accounts.
Unlike the traditional IRA, which does not permit contributions after age 70½, there are no age limits to contributing to a Roth IRA as long as you are earning income. It’s also worth noting that after age 70½, a worker may contribute to a traditional or Roth IRA on behalf of a non-working spouse as long as the spouse is younger.
Those who embark on a career as an entrepreneur or independent contractor may be eligible to set up a solo 401(k) plan. In 2018, the employee contribution limit to an individual 401(k) plan is $24,500 for people age 50 and up. Furthermore, their “business” can contribute an additional percentage of earned income for a combined total maximum of $55,000 per year.
Even if a working retiree doesn’t contribute to a savings account, earnings can help delay withdrawals from retirement investments and allow more time for growth opportunity.
Another benefit to working part-time in retirement is the ability to delay drawing Social Security. While benefits may begin at age 62, delaying enables a higher permanent payout amount. Not only does the extra income contribute to wages calculated for the Social Security benefit, but delaying until age 70 allows the benefit to accrue by 8 percent each year beyond full retirement age.
Part-time workers also should be aware that earning income may reduce Social Security benefits, as detailed below:
- Before full retirement age: Benefit is deducted by $1 for every $2 earned above an annual limit of $17,040 (2018)
- The year of full retirement age: Benefit is deducted by $1 for every $3 earned above $45,360 (2018)
- After full retirement age: No benefit deduction
You don’t need a special skill like pottery or woodwork to earn a part-time living. Many retirees have found fulfilling work using skills they've had their entire adult lives — like driving for Uber or Lyft, making coffee at Starbucks or answering the phone at a local dentist office. Retirees can even earn income doing whatever it is that led them to retirement — such as providing caregiving services for others in addition to a grandchild or elderly parent.
Some retirees consider starting their own businesses for part-time work. In fact, according to a report on startup business activity, the demographic between 55 and 64 years old accounted for nearly a quarter of all new entrepreneurs in 2015.
Thanks to the internet, web-savvy seniors can create new businesses without a lot of capital or complexity. Many have found avenues to sell wares based on a passion or hobby. For example, a retired financial services manager pursued her long-held dream to become a fashion designer. She opened a niche business online taking orders to convert fabrics from used wedding dresses into pillowcases and other keepsake items.
“I don't really need the money. I really do it more for fun. It just makes me feel good about me.”
If you’re considering working part time during retirement, think about what that might look like while you’re still gainfully employed. Depending on your post-retirement aspirations, you may need to take classes, get another degree, get certified or engage in some other type of training that requires funding. You can either work on getting that training while still employed full time or start setting aside some money to pay for it once you retire, letting you avoid dipping into retirement savings.
It’s a good idea to discuss these plans with a financial advisor to help determine the best way to make the transition from full- to part-time work. If a startup is in your future, it may require transitioning investment funds to help pay for the venture. The earlier you start making plans, the better — even if that day is years away.
Health Care Options
Health insurance is nearly always a factor when it comes to working part time because employers typically do not provide health care benefits for part-timers. If you plan to retire before qualifying for Medicare at age 65, you’ll need to consider ways to procure health insurance.
One option may be coverage under a working spouse’s plan. Another is to purchase an individual policy on the marketplace exchange. Note that in the past, not having a health insurance option was a real deal-breaker for retirees who wanted to start their own businesses or take part-time jobs. Health insurance premiums for pre-Medicare retirees with pre-existing conditions ran as high as $30,000, $40,000 or $50,000 a year before the enactment of the Patient Protection and Affordable Care Act (better known as Obamacare).
Presently, one of the advantages of the individual exchanges is that some applicants qualify for premium and/or cost subsidies based on low income — which may prove beneficial for a retiree working part time. In certain scenarios, a retiree even may pay a lower premium via the exchange than under a previous employer plan.
Another finding of the Bank of America/Merrill Lynch study was that more retirees ranked staying mentally and physically active and having social connections above earning money among their reasons to keep working. Many career professionals look forward to the opportunity to try their hand at something else, even if they don’t need the money.
In fact, staying active and engaged in the workforce — even if it’s just part time — can help retirees stay healthy and upbeat as they age. Which brings us to our final thought: Have you thought about what you want to do next?
While it’s great to aspire to a higher income, our lifestyles should fit our current income. If we can learn to be content with what we have, any additional funds are a bonus. There are few negative consequences to living below our means but quite a few advantages. One, of course, is that we have money available for those periodic big-ticket items without disrupting long-term plans for financial security.