Stefan R. Huber | Research Analyst
January 22nd, 2020
Boomerang retirement has never been so popular. Many retirees are returning in droves to the workforce that they recently left. Some do it for financial reasons, while others do it for purpose. In either case, there are many reasons to go back to work post-retirement. But before you take the big leap, take the time to think it out. Here are the four things you should consider before you return into the workforce:
Social Security Benefits
If you are currently receiving Social Security benefits, it’s important to determine whether new work would put a dent in your benefits or not. This is mainly determined by age. If you are under the retirement age of 65, you may be losing money upon your return to the workplace. For every $2 you earn over the annual limit ($17,040 as of 2019), you will lose $1 in Social Security Benefits. If you are under the retirement age, the annual limit is higher ($45,360 as of 2019), and you only lose $1 for every $3 earned over that limit.
Higher Income Tax
The silver lining to earning more money is that it could potentially put you into a higher tax bracket. In other words, your income tax rate will become higher. This is why it’s generally advised to take distributions from a 401(k) or IRA, which usually puts you in a lower tax bracket. The added income from returning back to work may affect how much tax you pay on those distributions.
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Often not discussed, but vitally important, is the expenses that accrue from participating in the workforce. This includes a variety of expenses. Riding public transit, eating out for lunch, and acquiring appropriate clothing can very quickly add up. This is why it’s important to look at your new salary versus your cost-of-living to see if it’s worth it. Costs can be minimized by living close to work, packing your own food, and deal-shopping for clothing.
Most retirees are covered under a Medicare plan, however it’s important to consider the impact of an employer-sponsored plan. If you or your spouse is over 65 and covered by a workplace plan, the employer plan will pay first, then Medicare picks up the rest of the tab. This is important to take into consideration as you weigh the benefits of each plan with each other.
There are many different things to consider before returning to work after retirement. What are some other things you’ve considered? Share with other members!
Don’t forget to check out other helpful finance articles on our website.