Working in retirement: financial considerations

For retirees who want to go back to work, there are some important financial considerations to keep in mind.
An advisor can help you think through the implications for you.
Consider these factors:

  • Social Security benefits: If you return to work, it’s possible that your additional income could bring you over the annual earnings limit for Social Security. That means you could temporarily lose all or part of your benefits before you reach full retirement age. After you hit full retirement age, you can work without affecting your benefits. For someone who isn’t receiving Social Security yet, returning to work is a way to delay benefits. Also, your benefit will increase each year until you turn age 70 if you wait to file.
  • Required minimum distributions (RMDs): If you go back to work, you must take distributions from your 401(k) and any pre-tax IRAs if you are over age 70 ½. That does not apply to Roth IRAs. However, if you are deferring funds into the new employer’s 401(k), most plans will allow you to push off your RMD unless you are an owner of the business at a level of 5% or more. With a new job, it might also be possible to roll your outside retirement accounts into the new one to avoid having to take your RMD from your pre-existing accounts. Check the rules of your new employer’s plan.
  • Qualified plans: A job that provides a tax-deferred savings plan could allow you to save more, especially if you are able to contribute up to the annual limit and make catch-up contributions. If you return to work part-time, you might also be able to take distributions from a qualified plan while working, depending on the rules of the plan.
  • Health insurance: Many people return to work for the health insurance. If you’re on Medicare, find out whether the new company’s insurance will work alongside it. Also, be aware that as your income rises, your Medicare Part B premiums might also increase over the standard amount, depending on your income level. While group insurance coverage is typically less expensive, it can be worth keeping your private insurance policy as well. You might not be able to get the policy again at the same rates in the future.
  • Income taxes: Making money means paying income taxes, of course. A new job could push you into a higher tax bracket. You might be able to avoid that by deferring funds in a tax advantaged plan. Social Security benefits are taxable as well, depending on the level.
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