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Recently retired and thinking about going back to work? If so, you’re not alone. Many people choose to “withdraw their retirement”. But what opportunities do you have if you are re-employed in some way, and how will your re-employment affect your financial prospects?
So first, what motivates you to go back to work? For many, the main culprit is inflation, which poses a major challenge for retirees living on fixed incomes. In addition, volatile financial markets in 2022 have devalued many people’s investment portfolios. This is a serious problem for retirees who have had to start selling investments to supplement their income.
However, non-financial factors may be driving you into retirement. Like any retiree, you may miss opportunities to use your work experience to engage with the world, and you may miss out on social interactions.
Either way, if you decide to reintegrate into society in any way, you may have several options. For example, if you enjoyed the work you did for your previous employer, you may want to see if you can return to work part-time. You can also play and use your skills to join the “gig” economy. You can also consider working for a non-profit organization. Many of these organizations lost employees during the COVID-19 pandemic and are now facing labor shortages.
Returning to work, even part-time, will improve your cash flow and help cover the cost of your usual spending. Extending the life of these accounts is also important given that you may spend 20, even 30 years in retirement. (However, once you turn 72, you’ll need to start drawing certain amounts from your 401(k) and traditional IRAs.) But your income will affect another source of income in retirement: Social Security benefits. There is a possibility.
If you return to work before your “perfect” retirement age, which is likely between the ages of 66 and 67, your Social Security income cap for 2023 is $21,240. For every $2 you earn over that amount, Social Security will deduct $1 from your benefits. If you reach full retirement age in 2023, your income cap is $56,520. Social Security will deduct from your benefits $1 for every $3 you earn over this amount until the month you reach full retirement age. But all future after reaching full retirement age, you can earn as much as you want without losing your benefits. Social Security then recalculates your payments to make a deduction for the months in which benefits were reduced or deducted for excess earnings. However, keep in mind that your income can make your social security benefits taxed higher, regardless of your age.
Returning to work is both financially and emotionally rewarding. You’ll also get more out of your experience if you’re aware of the issues involved.
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