Working after retirement: Factors to consider

Continuing to work after retirement is not as unusual as it may have been in the past.

Retirement no longer looks like it did 30 years ago. Many would-be retirees are trading leisurely golden years in favor of a second career or passion project — what’s sometimes referred to as an encore career.

“I see two benefits to continue working after retirement,” says Tom Thiegs, leadership and legacy consultant for Ascent Private Capital Management at U.S. Bank. “One is for the community and the workforce, and the second is for the individual. It may give them an opportunity to do something in a field that is more aligned with their passions, that they might not have had the opportunity to do as a profession.”

Many older workers are interested in finding a role that allows them to try something new, generate a positive social impact or simply stay active and engaged. If you’re interested in continuing to work in retirement, consider these four factors.

Factors to consider for working after retirement

1. A second chance at job satisfaction

As Americans live longer and enjoy a longer retirement, many retirees are finding they have the time and energy to approach a new career that is meaningful to them personally or begin their own projects from scratch.

Often the draw of a second career is job satisfaction and fulfillment, rather than a steady income. Many would-be retirees find a second calling in working for volunteer organizations or nonprofits. “They’re finding a way to give back — whether it’s to children, a service or to the community,” Thiegs says.

While many people seeking jobs after retirement don’t need additional income, it can still be an advantage, especially if the extra income means you can hold off on collecting Social Security or withdrawing from your retirement accounts.

2. Working longer means more income

“If you delay Social Security benefits until age 70, you can increase your monthly benefits,” explains Thiegs. While you can start collecting Social Security at 62, your benefits increase if you wait until you reach full retirement age and continue increasing until you hit the maximum retirement age at 70. Your benefit amount increases by 8% each year you delay receiving it up to age 70.

Waiting to withdraw money from traditional individual retirement accounts (IRAs) and 401(k)s can also benefit you. While you will need to take required minimum distributions (RMDs) at age 73, the longer you can leave funds in your accounts, the more potential there is for tax-deferred growth.

Ultimately, if working after retirement gives you enough financial support that you can delay your retirement account distributions or increase your Social Security benefits, you may be better off  financially in the latter part of your retirement.

3. Understand the potential for financial complication

There are other financial factors to consider, aside from continued income.

If you're younger than full retirement age and already collecting Social Security, for example, there's a limit to how much income you can earn and still receive your full benefits.

If you are old enough to take RMDs from your retirement accounts, combining that income with income from your job could push you into a higher tax bracket. Consult with a financial professional to determine an individualized plan for receiving Social Security benefits and IRA distributions alongside additional income sources.

It’s also important to consider job-related expenses like traveling or training, which could be a drain on your retirement savings, especially if the new career has a smaller salary than your previous one.

4. Lifestyle effects of working after retirement

Even if you select a job based on your passions, you still need to consider all the effects a new position would have on your retirement.

Thiegs recalls a retired client who took a part-time position in a chiropractor’s office, without realizing there were travel, education and certification requirements she didn’t want or expect.

These parts of an encore career need to be evaluated. “Really sit down and consider what the requirements of the job are, relative to your expectations for your retirement. If they’re not aligned, your work might impinge upon your retirement expectation,” Thiegs says. Consider that new obligations may affect how much time you can spend with your family or pursuing hobbies outside of work, much as a traditional career might, even if the responsibilities are reduced.

5. Transitioning to part-time work with a phased retirement

It isn’t uncommon for people to transition into retirement over a period of years by continuing to work on a part-time basis or in a consulting role.

• Military personnel who retire after 20 or more years of service may choose to pursue employment or consultancy work.
• Nurses no longer desiring full-time hours can consider PRN status, which offers much more flexibility.
• The same is true of retired educators who may want to serve as a substitute teacher.
• Retiring corporate employees often work out consulting relationships, in many cases with the same employer.

If you choose to continue working at least part-time, the income earned generates cash flow that allows you to preserve, and perhaps even add to, your retirement savings. It may allow you to delay taking Social Security and continue to earn credits to potentially enhance future Social Security payments.

How to pursue working after retirement

If working once you retire is appealing to you, you may be interested in a low stress job after retirement that prioritizes satisfaction and fulfillment, such as a tutor, youth sports coach or pet care provider.

Another option is to consult with a career coach. “A coach could walk you through some important questions, such as: ‘Why are you doing this? What are your goals? What do you hope to accomplish?,’ and then align your answers with your skills and background,” Thiegs says. Just make sure to consider what kind of retirement you are expecting and how your job may affect that.

As you consider whether an encore career is right for you or not, it’s okay to explore and try different options. The benefit of being retired is that you don’t have to ‘stick it out’ for years if it’s not right for you and when you do find the right thing, it can be very fulfilling and joyful.

A well-designed income strategy can help you work a job into your retirement plans. Here are 4 steps to take when planning your retirement income.