If you’re considering retirement, deciding whether or not you’ll need to keep working can be a difficult and confusing question. There are a number of things to consider, but the list below should help you to make an informed decision.
1. Consider your actual living expenses after retirement
Once you know how much you’ll need to keep your household going from month to month you can examine how much money you’ll receive in Social Securityand how much you’ll be able to draw from any investment accounts or IRAs you may have. Be sure to make your calculations based on the post-tax dollar amount to avoid a potentially serious misstep.
You’ll need to be aware that working after retirement could actually push you into a higher tax bracket, which could cause you to fall short of your monthly expenses. Determine what your tax liability will be, including your Social Security and any other income you may have, then determine how continuing to work will impact that liability.
2. Understand how working will impact your Social Security
There are a couple of factors to be taken into account when determining whether or not working after retirement is going to impact your Social Security. It will be impacted by the age at which you retire and your income from work. If you decided to wait until you had reached fill retirement age you can earn any amount without reducing your benefits. On the other hand if you retired anytime between the age of 62 and your full retirement age, you can be penalized financially for earning more than around $15,000.
By researching the full retirement age for yourself you can discover the cap on your income. If you exceed that cap for a full year your Social Security payments will be reduced by $1 for every $2 you go over, and if it will be less than a year you will lose $1 for every $3, but the income limit is significantly higher. Use government resources to be sure that you are being given the most accurate information.
3. Determine what the best health care option will be
Once you’ve reached age 65 you will automatically qualify for Medicare. If you’re still working you may also be paying for some private insurance through your employer, and it will be in the best interest of that insurance company to get you moved over to Medicare as soon as possible.
For many people this is a great option, but in some cases a private insurance plan will cover treatments and procedures that Medicare won’t. It is important to realize that you can keep both types of coverage, but bear in mind that you will be paying to health care premiums. Speaking with your medical provider and a representative from both of these insurers can help you to sort out the best option for your health and finances.
4. Research how working in retirement will impact your pension
If you have a pension or a 401K plan, you’ll want to speak with the administrator of that plan to understand what effect working in retirement will have on it. While continuing to work can reduce the amount of time you’ll spend draining these funds and even increase them with added contributions, some pension plans max out at 30 years and continuing to work could lead it to stagnate or even to be reduced. On the other hand, some pensions are based on your most recent salary with the company, and if you decide to drop down to part time with the same employer to supplement your income, a large portion of your pension could disappear.
5. Decide whether or not you’ll spend your golden years doing something you love
One of the best advantages of working in retirement is the fact that money can be a secondary goal. If you’ve planned and invested well, and if you live within your fixed means, you can choose to do something that you find interested, fulfilling, or fun, and worry less about how much it will contribute to your income.
Some people find ways to work from home, some work as consultants in their former industry, working to shape it for the better. Others endeavor to write their history or give back to their community. The most important thing to remember is that you now have the luxury of choosing how to spend your time, so why not spend it doing something that makes you happy?
Arlene Chandler works as a freelance writer for Suncorp, a company that provides income protection insurance for Australians.