The Pros and Cons of Working Past 65
Dear Rich Lifer,
When you imagine retirement, are you lying on a beach, hitting golf balls, or working behind a desk?
For many soon-to-be retirees, the office is where they will spend most of their golden years. Working past 65 not only gives you the opportunity to earn more money, but you’ll maintain structure in your days and keep important social connections alive.
However, working in retirement is not for everyone. There are some drawbacks to working in your golden years. For instance, some people are surprised when we tell them their retirement income is subject to tax.
If you’ve started collecting Social Security benefits and you pick up a side gig to make a few extra dollars, your earnings may push your income to a level where your Social Security benefits are taxable.
And if you’re younger than full retirement age, working may temporarily lower your Social Security benefits too.
Today we outline some of the pros and cons of working past age 65 so you know what to expect should you decide to extend your career.
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Pro: You Can Eliminate Sequence Risk
When you choose to retire can significantly impact how much money you will have over the course of your retirement. If you decide to retire at age 65, the size of your nest egg will largely depend on how the market performs during those first few years in retirement.
This is often referred to as sequence risk. If the market declines in the early years of retirement, paired with ongoing withdrawals, your portfolio could be significantly reduced over the course of your retirement.
By choosing to work into your 70s, 80s, maybe even 90s, you can wait out a poor performing market, essentially eliminating sequence risk altogether.
What if you’re forced into retirement? Then we strongly suggest you find part-time work to ride out a market low, even if it’s just for those initial few years of retirement. This can make a massive impact on the longevity of your nest egg.
Con: You’ll Pay Higher Taxes
Some people are surprised when we tell them their retirement income is subject to income tax. If you continue working, even only part time, you run the risk of boosting your income past a threshold where your Social Security benefits become taxable.
Self-employed retirees are hit with almost 15 percent payroll tax. And after age 70, your tax bill could go up again when you’re forced to take distributions from an IRA or 401(k) plan.
It’s important to factor these into your plan when you decide if working in retirement is right for you. If you fail to consider how a part-time job or side gig might impact your taxes, you could be hit with a surprising bill come April.
Pro: Work Keeps Your Brain Healthy
There is plenty of research to support that work delays the onset of age-related diseases like dementia and alzheimers. Work also keeps you feeling younger. Many older workers report feeling younger than their actual age due to their sense of purpose and regular daily routine.
Plus, if you choose to work in retirement, you likely will have more friends. Work provides opportunities for social interaction. If you’re someone who easily gets bored without work to do, having a place to go every day, with people to meet, and problems to solve could be an ideal retirement.
Con: Working in Retirement Can Make You Sick
While there’s research to support that working longer keeps you healthier and happier, there’s also evidence for the opposing view. The National Bureau of Economic Research found, “retirement improves both health and life satisfaction,” in part by factoring in the number of people who are forced to retire due to health issues.
But there’s a major caveat here. Relatively few people have the financial means to support an extended retirement. So even though you become eligible for Social Security at age 62, you don’t actually qualify for your full monthly benefit amount until a few years later.
This means you’ll likely have to dip into your retirement savings to maintain an adequate quality of life. But with longer life expectancies, this becomes nearly impossible and thus the health of many retirees suffers.
Pro: Better Work-Life Balance
If you decide to continue working in retirement, your job will likely become more flexible than your typical career job. Several 60-somethings transition to retirement by arranging part-time work, bridge jobs or a phased retirement.
For example, a lawyer might cut back to three days a week for lower pay. A product engineer might give up his management responsibilities to go back to the laboratory part-time, with flexible hours.
Some retirees will even negotiate work from April through December, and then take off somewhere warm for the winter months.
Con: Your Job Might Not Be That Flexible
While some older workers can choose when they work and how often, the reality is a lot of older workers don’t have that luxury.
If you don’t have enough savings to retire comfortably, you may be stuck in a job you hate for a few more years. This could deteriorate your health and lead to serious health problems that prevent you from enjoying your golden years when you finally do leave the workforce.
It’s important to weigh the benefits of leaving a job early that’s sucking the life out of you. It could be worth more than what you stand to make.
Pro: You Can Try Something New
Just because you decide you want to continue working, doesn’t mean you have to stay in the same field or role. Most jobs offer the opportunity to learn new skills and stay up to date with changes in the industry.
If you know you need mental and intellectual stimulation, staying in a job that offers continuing education might be a good idea.
Con: You Limit Your Time to Pursue Hobbies
Possibly the most important reason not to keep working is the opportunity to pursue a new life and make it your own.
Maybe you want to retire while you’re still healthy enough to travel. Several retirees develop their creative side by taking up music, painting, woodworking, and pottery. While others just want more time with their grandchildren, which you can’t have if you’re stuck at work.
These are just some of the pros and cons to working past 65. Keep these top of mind when you decide to finally hang up your hat.
To a richer life,
The Rich Life Roadmap Team