Making the Most of Working During Retirement

By John Trezza

Planning on working during retirement? If so, you’re not alone. An increasing number of employees nearing their retirement plan to work at least some period of time during their retirement years.

Why work during retirement?
Obviously, if you work during retirement, you’ll be earning money and relying less on your retirement savings—leaving more to potentially grow for the future and making your savings last longer.

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

But there are also non-economic reasons for working during retirement. Many retirees work for personal fulfillment—to stay mentally and physically active, to enjoy the social benefits of working, and to try their hand at something new.

How will working affect Social Security?
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), upon which your retirement benefit will be based. Your PIA is recalculated annually if you have any new earnings that might increase your benefit. So if you continue to work after you start receiving retirement benefits, these earnings may increase your PIA and thus your future Social Security retirement benefit.

If you haven’t yet reached full retirement age of 65 to 67, $1 in benefits will be withheld for every $2 you earn over the annual earnings limit ($14,160 in 2009). A special rule applies in your first year of Social Security retirement—you’ll get your full benefit for any month you earn less than one-twelfth of the annual earnings limit, regardless of 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 ($37,680 in 2009), $1 in benefits will be withheld for every $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.

One last important point to consider: in general, your Social Security benefit won’t be subject to federal income tax if that’s the only income you receive during the year. But if you work during retirement (or receive any other taxable income or tax-exempt interest), a portion of your benefit may become taxable.

How will working affect my pension?
If you work for someone other than your original employer, your pension benefit won’t be impacted at all—you can work, receive a salary from your new employer, and also receive your pension benefit from your original employer but 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 increase your payment when benefits resume, accounting for the period of time benefits were suspended. Still other plans will suspend your benefit for any month you work more than 40 hours, and will not provide any actuarial increase—in effect, you’ll forfeit your benefit for any month you work more than 40 hours.

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 at the end of your career could reduce your final average pay, resulting in a smaller benefit than you might otherwise have received.
________________________________________

John Trezza has more than 20 years of experience matching clients with investments and he has worked as a financial consultant in the banking industry for more than 15 years. He is available for personal or group consultations with no obligation. To learn more, contact him at Infinex Financial Group Located at 3rd Federal Bank at (267) 757-8919 or jtrezza@infinexgroup.com.
Investment and insurance products and services are offered through INFINEX INVESTMENTS, INC. Member FINRA/SIPC. In Massachusetts, insurance products are offered through Infinex Insurance Agency of Massachusetts, Inc. Infinex and the bank are not affiliated. Products and services made available through Infinex are not insured by the FDIC or any other agency of the United States and are not deposits or obligations of nor guaranteed or insured by any bank or bank affiliate. These products are subject to investment risk, including the possible loss of value. NOT FDIC-INSURED. NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY. NOT GUARANTEED BY THE BANK. MAY GO DOWN IN VALUE.