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Working in retirement: Everything you need to know

At a glance:

  • Overview of working in retirement

  • Jobs in retirement

  • Social Security and tax issues in retirement

  • Summary of working in retirement

  • Practical ideas you can start with today

For many of us today, "retirement" is a bit of a misnomer, because we find it necessary to maintain a stream of income to afford a desirable lifestyle once we stop working full time.

Of course, even if you're financially secure, a little extra money doesn't hurt, and research shows that older people who work—especially those in jobs they enjoy—tend to be happier and live longer than those who don't.

But the idea of continuing to work raises some questions we'll look at here.

Overview of working in retirement

For many folks, retirement will in fact no longer mean the end of working.

Instead, it will usher in a career and lifestyle transition, presenting multiple options. Working in retirement means different things to different people.

Our old definitions of retirement no longer apply—retirement has been redefined.

Consider these facts:

  • According to Pew Research, 10,000 Baby Boomers will turn 65 every day until 2030. Many of these folks may be searching for something beyond a leisurely retirement.

  • According to the Bureau of Labor Statistics, 40% of people age 55 and older are still working.

  • The same study also showed that 47% of retirees say they either have worked or plan to work during retirement years.

People work in retirement for a variety of reasons, including the opportunity to earn more money for a comfortable retirement and because they would be bored if they weren't working. This begs the question: Why do those working in retirement retire in the first place?

Why retire?

Not surprisingly, studies point to a variety of factors, including:

  • Job "burnout" or health issues that make one's initial career impossible or undesirable to continue

  • Employer "push-out"—layoffs or buyouts

  • The desire to pursue other interests or life goals while one is still healthy enough to do so

  • The demands of caregiving to parents, spouses or grandchildren


Why work?

As to why people are working in retirement, the majority do so for financial reasons—to be more economically comfortable or because their income from other sources would simply not be enough to live on.

But a significant number report that they'd just be bored or feel unproductive or not useful if they were not working. They want to interact with people and stay physically and mentally active.

In short, they enjoy working.

In fact, a great many folks have no plans to leave the workforce entirely in the near future—or at all, if their health will allow it.

Jobs in retirement

This question is best asked during your preretirement years, so that you can determine how much you'll need and expect to earn, and what skills, training, education you might need to stay employed.

The answer can be a challenge because we tend to get locked into the career we've pursued over many years.

How much money will you need?

Besides retirement employment, you'll have Social Security and retirement savings to rely on.

So many folks feel they'll need and want to supplement their retirement income with about 25% of what their preretirement income was. Of course, that's a ballpark figure.

The point is, you'll need less income from employment in retirement than you did before retirement. That lower employment income requirement opens up a lot of "outside the box" possibilities that can be quite rewarding.

Start by asking yourself what you are good at and what you like doing.

If you enjoyed the position at which you ended your full-time career, might there be a role for you with that employer or in that industry as a consultant or part-timer? Did you acquire special knowledge or skills that would allow you to teach at a local community college or vocational school?

$100,000 will get you far in retirement in Mississippi. (Graphic: David Foster/Cashay)
$100,000 will get you far in retirement in Mississippi. (Graphic: David Foster/Cashay)

Places for retirees to work

AARP has identified several areas that are tailor-made for retirees who want to supplement their income:

  • Athletic official: Check out your local city, school or adult sports leagues. They all need umpires, referees, and scorekeepers, and you can figure on $30–50 per game, two or three times a week. The National Association of Sports Officials has a state resource guide here.

  • Teacher's aide: This will likely involve some grunt work—clerical duties such as grading papers, recording grades, setting up equipment, and entering computer data. But there may be more rewarding aspects to the job, such as one-on-one tutoring for a student who needs special help or has a disability that requires individual attention. A college degree, coursework in child development, and previous experience can open up job opportunities.

  • Tour jobs: Tour guide jobs are available in all sorts of places that attract visitors, from major art galleries to smaller museums to factories to wineries and breweries. Many of these venues will also have positions for ticket-takers, program sellers, or cashiers. It helps if you have a mind for remembering facts and details, and of course, you must be a "people person," able to interact easily with everyone in the general public.

  • Convention center jobs: There are generally convention centers in cities of even moderate size, hosting trade shows, conventions, consumer shows, concerts, athletic events, and meetings. You might stop by at an event and ask booth operators about future openings. The possibilities are a wide range of part-time jobs with various skill requirements. Some of these include parking lot attendants, cashiers, setup worker/cleaners, ushers, and information booth attendants. Often, there are also food service opportunities for banquets and special dining events.

Additionally, you should check the AARP National Employer Team program. This is a list of companies that have joined with AARP, recognizing the value of older workers in the workforce.

Social Security and tax issues in retirement

Social Security as presently constituted is a guaranteed, inflation-adjusted lifetime annuity. Sure, it can be tempting to take Social Security as early as possible—age 62.

But the payout is lower at the younger age, and you will leave a lot of money on the table—unless you're sure you are going to die young.

Even then, however, what about the value of spousal benefits if your spouse outlives you by many years?

To maximize your Social Security income

To avoid losing Social Security to either income tax or through lowered benefits, many experts advise those planning to stay on the job to delay taking their Social Security for as long as possible. The longer you wait, the higher the monthly payout.

Your benefits will increase each year until you reach age 70. So if you continue working, you can get the most out of your benefits by waiting until then to begin taking Social Security. But at age 70, the payment to which you're entitled is maxed out, so it makes no sense to delay beyond then.

You can work while receiving Social Security

Of course, you can work while you receive Social Security retirement (or survivors) benefits. Some people will find this results in a higher benefit for you in the future. Higher benefits can be important to you later in life and increase the future benefit amounts your family and your survivors could receive.

When to begin drawing on it

A consultation with a financial planner can be very helpful in evaluating the best time for you to begin drawing Social Security.

Many planners look at the break-even age: If you start at 62 you receive a lower stream of payments, but you get it for more years, compared to starting at 70, when you'll get a higher amount, but for fewer years.

So when does the cumulative total of the age 70 benefit exceed the total you'd get from applying at 62? Typically it's around age 78. So many advisers ask about your family and personal life expectancy.

To put it bluntly, do you think you'll make it past 78? If so, other factors aside, it's probably wise to stay in the workforce if necessary to avoid resorting to Social Security prior to age 70.

Be sure to include an attorney in your Social Security decision-making process, as financial planners and advisors cannot give legal advice regarding Social Security.

Tax issues to consider

This is likely to be so even if it results in the need to draw more money out of your tax-deferred retirement savings such as a 401(k) or IRA.

That is, it's often better to do just that—pay income tax on the withdrawal and to delay taking Social Security.

Remember, too, that you must begin tapping that IRA at around age 70 anyway, and the higher the account balance, the greater will be the annual minimum required distribution, as well as the tax on that greater distribution.

Millennials aren't contributing as much to their retirement. (Graphic: David Foster/Cashay)
Millennials aren't contributing as much to their retirement. (Graphic: David Foster/Cashay)

In other words, by not drawing upon your IRA sooner rather than later, you might wind up having to take out more money from it each year than you need, at a greater overall tax cost.

Bottom line: In a great many scenarios, you will be better off using a combination of retirement employment and tax-deferred savings to live on while delaying your Social Security benefits until age 70.

Another reason to keep working

Another factor to consider is that your Social Security benefit is calculated by averaging your earnings in your 35 highest-paid working years. If your work history did not cover 35 years, the average will include zero earnings for the years you did not work, resulting in a lower benefit.

Therefore, if going back to work replaces zeros or low-earning years with higher-earning years, then your benefits will go up. You can check your earnings history in the Social Security statement that is available to you online at

While you are working, your earnings will reduce your benefit amount—but only until you reach your full retirement age. After you reach full retirement age your Social Security benefit is recalculated, leaving out the months when you received reduced benefits due to your excess earnings.

Social Security uses a formula to determine how much your benefit must be reduced: if you are under full retirement age for the entire year, $1 is deducted from your benefit payments for every $2 you earn above the annual limit. For 2020, that limit is $18,240.

Starting with the month you reach full retirement age, you can get your benefits with no limit on your earnings.

More tax stuff

Note that full retirement age had been 65 for many years. However, beginning with people born in 1938 or later, that age gradually increases until it reaches 67 for people born after 1959.

There is an online calculator you can use to enter your date of birth and find your full retirement age. For more information see the Social Security Retirement Planner page.

When to pay tax on your Social Security income

You will have to pay federal taxes on your Social Security benefits if you file a federal tax return as an individual and your total income is $25,000 or more.

If you file a joint return, you will have to pay taxes if you and your spouse have a total income of $32,000 or more. Above those limits, up to 85 percent of your benefits are subject to income tax.

Use the Internal Revenue Service (IRS) Notice 703 shown on the back of the Social Security Benefit Statement, SSA Form 1099, to determine if any of your benefits may be taxable.

For complete information on the taxation of Social Security benefits, see IRS Publication 915.

Finally, remember that Social Security does not withhold state or local taxes from your benefit.

Fortunately, many states and local authorities do not tax Social Security benefits, but if you live in a place where they are taxed, you should be prepared for the tax hit and plan accordingly.

Summary of working in retirement

The notion of retirement in today's society has changed substantially from generations past. Many of us will continue to work for a variety of reasons, primarily to provide additional income.

One should begin by deciding on a suitable second career or part time job prior to retirement. The touchstone of this decision is to decide what you like to do and are good at.

Additionally, those approaching retirement would be wise to seek the help of a financial planner to help determine how best to maximize their Social Security withdrawals and tax-deferred retirement account distributions.

Practical ideas you can start with today

  • Get your Social Security benefits report so you can determine how much you can expect to receive during retirement.

  • Consult with a financial planner as to what you can expect to withdraw each year from your retirement savings, and how you can coordinate these withdrawals with your anticipated Social Security benefits.

  • Determine what, if any, retirement income shortfall you will need to make up through part- or full-time employment.

  • Investigate the various retirement jobs or careers that might be possible, practical and enjoyable for you.

This content was created in partnership with the Financial Fitness Group, a leading e-learning provider of FINRA compliant financial wellness solutions that help improve financial literacy.

Read more information and tips in our Retirement section

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