Working During Retirement


If you plan on working during your retirement, you’re not the only one. An increasing number of Americans plan to work at least some of the time during the course of their retirement years. According to the Employee Benefit Research Institute’s 2013 Retirement Confidence Survey, 69 % of workers plan to work in retirement, but historically only about 1 in 4 retirees have had the opportunity to do so.

If you plan to work during retirement, consider how you might adjust your plans if illness or job loss prevented employment. One benefit is that you’ll be earning money and your savings could last longer, as shown in the example below:.


  • Retirement savings $1,000,000
  • Earnings rate 6 %
  • Preretirement income $150,000
  • Social Security $2,000 / month
  • Desired income replacement 80 % ($120,000 / year, $10,000 / month)
Without working, you’ll need to use $8,000 ($10,000 desired income minus $2,000 Social Security) of retirement savings per month, and your savings will last 16 years.
But if you earn this amount monthly: for 3 years, your savings will last: for 5 years, your savings will last: for 10 years, your savings will last:
$1,000 17 years 18 years 19 years
$2,000 18 years 19 years 22 years
$3,000 19 years 21 years 26 years
$4,000 20 years 23 years 32 years
$5,000 22 years 26 years 39 years
This is a hypothetical example and is not intended to reflect the actual performance of any specific investment, and does not take into account the effect of taxes and inflation.


If you still work, you may also have access to affordable health care, as more and more employers are offering this important benefit to part-time employees.

“There are also non-economic reasons for working during retirement,” says Martin Walcoe, EVP of David Lerner Associates. “Many retirees work for personal satisfaction– to stay mentally and physically active, to take pleasure in the social advantages of working, and to try their hand at something new– the reasons are as varied as the number of retirees.”

If you have private or employer-sponsored health insurance, talk to your benefits administrator or insurance representative before enrolling in Medicare to learn how your current health insurance fits in with Medicare.

Working can affect your Social Security benefits

If you work after you start receiving Social Security retirement benefits, your earnings may affect the amount of your benefit check. Your monthly benefit is based on your lifetime earnings. When you become entitled to retirement benefits at age 62, the Social Security Administration calculates your primary insurance amount (PIA), whereupon your retirement benefit will be based. Your PIA is recalculated annually if you have any new earnings that might increase your benefit. If you continue to work after you begin receiving retirement benefits, these earnings may boost your PIA and hence your future Social Security retirement benefit.

“Working may cause a reduction in your current benefit,” says Martin Walcoe. “If you’ve reached full retirement age (66 to 67, depending on when you were born), you don’t need to concerned about this– you can earn as much as you want without affecting your Social Security retirement benefit.”

If you haven’t yet reached full retirement age, $1 in benefits will be withheld for every $2 you earn over the annual earnings limit ($15,480 in 2014). A special rule applies in your first year of Social Security retirement– you’ll get your full benefit for any month you earn under one-twelfth of the annual earnings limit, in spite of just how much you earn during the entire year. A higher earnings limit applies in the year you reach full retirement age. If you earn more than this higher limit ($41,400 in 2014), $1 in benefits will be withheld for each $3 you earn over that amount, until the month you reach full retirement age– then you’ll get your full benefit no matter how much you earn. (If your current benefit is reduced as a result of excess earnings, you may be entitled to an upward adjustment in your benefit once you reach full retirement age).

Not all income reduces your Social Security benefit. In general, Social Security only takes into account wages you’ve earned as an employee, net earnings from self-employment and other types of work-related income, including bonuses, commissions, and fees. Pensions, annuities, IRA distributions, and investment income won’t reduce your benefit.

Keep in mind that working may enable you to put off receiving your Social Security benefit until a later date. In general, the later you begin receiving benefit payments, the greater your benefit will be. Whether delaying the start of Social Security benefits is the right decision for you, however, is dependent on your personal circumstances.

One last important point to consider: generally, your Social Security benefit won’t be subject to federal income tax if that’s the only income you receive during the year. If you work during retirement (or receive any other taxable income or tax-exempt interest), a portion of your benefit may become taxable. IRS Publication 915 has a worksheet that can serve to help you determine whether any part of your Social Security benefit is subject to federal income tax.

Working can affect your pension

If you work for someone aside from your original employer, your pension benefit won’t be impacted whatsoever– you can work, receive a salary from your new employer, and also receive your pension benefit from your original employer. If you continue to work past your normal retirement date for the same employer, or if you retire and then return to work for that employer, you need to understand how your pension will be impacted.

Some plans will allow you to start receiving your pension benefit once you reach the plan’s normal retirement age, even if you continue to work. Other plans will suspend your pension benefit if you work beyond your normal retirement date, but will actuarially grow your payment when benefits resume to account for the period of time benefits were suspended. Still other plans will suspend your benefit for any month you work greater than 40 hours, and will not offer any actuarial increase– essentially, you’ll forfeit your benefit for any month you work more than 40 hours.

Some plans provide yet another option–“phased retirement.” These programs allow you to continue to work on a part-time basis while accessing all or portion of your pension benefit. Federal law encourages these phased retirement programs by allowing pension plans to start paying benefits once you reach age 62, even if you’re still working and haven’t yet reached the plan’s normal retirement age.

If your pension plan calculates benefits using final average pay, be sure to discuss with your plan administrator how your particular benefit might be affected by the decision to work part-time. In some cases, reducing your hours by the end of your career could reduce your final average pay, resulting in a smaller benefit than you might otherwise have received.

Working can affect your health benefits

Many people work during retirement to retain their medical coverage. If working during retirement for you means moving from full-time to part-time, it’s important that you fully understand how that decision will impact your medical benefits.

Some employers, especially those with phased retirement programs, offer medical coverage to part-time employees. Other employers don’t, or require that you work a minimum number of hours to be benefits eligible. If your employer doesn’t offer medical benefits to part-time employees, you’ll need to search for coverage elsewhere. If you’re married, the obvious option is coverage under your spouse’s health plan, if your spouse works and has coverage available. Otherwise, you may be eligible for COBRA.

COBRA is a federal law that enables you to continue receiving medical benefits under your employer’s plan for some period of time, usually for 18 months, after a qualifying event (including loss of coverage a result of a reduction in hours). It’s costly — you typically have to pay the full premium yourself, plus a 2 % administrative fee. (COBRA doesn’t apply to employers who have fewer than 20 employees.) Another option is private health insurance, but that will also be very expensive.

Of course, once you turn 65, you’ll be eligible for Medicare. You’ll want to contact the Social Security Administration approximately three months before your 65th birthday to discuss your options.



David Lerner Associates does not provide tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and can not be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we can not assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Prepared by Broadridge Investor Communication Solutions, Inc.

Copyright 2014

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. Member FINRA & SIPC. 


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