Should You Go Back to Work After Retirement?

If you’re retired, but considering going back to work, you’re not alone. According to a recent Longevity Alliance and Harris Interactive poll, 43 percent of surveyed retirees seriously considered re-entering the workforce a short while after they left their companies. 

Going back to work can be a good way to raise cash, increase health insurance coverage, and improve your overall budget. But before you go out and get a new job, it’s important to understand how new employment could affect your existing retirement benefits, including Social Security and health care. 

Here are five factors you should consider before deciding whether to reenter the workforce. 

1. Understand how work affects Social Security benefits

If you’re age 62 or older, you may have already decided to start receiving Social Security retirement benefits. However, if you get a job and expect your income to increase, you’re required to notify the Social Security Administration (SSA). 

That’s because if you receive benefits, but are not yet at full retirement age (as defined by the SSA), some of your benefits may be reduced if you earn more than the annual income limit (which is $14,160 in 2011). Generally, for every two dollars you earn above the annual limit, your benefits are reduced by $1.00. 

The SSA full retirement age has been gradually increasing, but it’s between 65 and 67 years old, depending on the year you were born (it is age 67 for everyone born in 1960 and later). 

If you’re at the year when you will reach your full retirement age, but haven’t had your birthday yet, your benefits will decrease, but not by as much. They’ll be reduced by $1.00 for every three dollarsyou earn above the annual limit, until your birthday. 

The good news is once you reach full retirement age, your benefits will no longer be reduced, no matter how much money you earn. Also, the reductions shouldn’t be considered a permanent loss of benefits. If you get a new job, you’d be withholding more Social Security taxes. So your benefit would actually increase, and when you start receiving Social Security checks in the future, they’d be larger. To read more detail about these rules, including specific examples, visit the SSA Web site.

 2. Ask about health insurance

Many retirees go back to work because they’re seeking a job with health insurance benefits. In fact, the Longevity Alliance/Harris Interactive poll revealed that nearly a third of respondents say “changes in health care coverage” are a factor in considering a return to work. 

But a new job may not offer all the health insurance benefits you may be seeking, such as long term care, mental health services and preventive care. Before you accept an offer, ask for specifics about any health benefits available. Also, make sure you understand whether pre-existing conditions are covered. 

If you already have medical insurance, compare a potential employer’s coverage with your own. Initially, it may be cheaper for you to drop private insurance and sign up for a group policy at a new company. But if you end up leaving your new job, you might have to apply for a new individual policy later, and it could be harder to get medically approved. 

People age 65 or older may be eligible for Medicare benefits, which provide hospital and medical insurance. If you’re covered by Medicare, check with your potential employer’s human resources (HR) department and ask how their insurance coverage works with the Medicare you receive. 

Also, if you plan to go back to work for your former employer, ask the HR department if your new job position would affect any retirement benefits you’re already receiving from the company. 

3. Plan for taxes

Going back to work means you get a chance to make more money, but the boost in income might put you in a higher tax bracket. It’s probably worthwhile because you can take home more cash, but make sure you’re withholding enough money so that you don’t end up owing too much in taxes when you file your return. 

Also, if you have a traditional IRA retirement account, note that you have to receive distributions from your account starting at age 70 ½. This would be extra money in your budget, but it’s generally taxed as ordinary income. Regardless of your age, contact a trusted financial advisor for specific advice about how your taxes would be affected if you go back to work. 

4. Add up the costs

Even though getting a new job can mean more money, it also probably means taking on more expenses. You may have to buy a new work wardrobe and pay more in gas and commuting costs to get to your new job. Weigh these costs before deciding whether you should accept an offer. 

5. Know where to look

If you have considered the above factors and decide that going back to work is still the right choice, your next step will be to look for a job. 

To make the search easier, use online resources that cater to job-seekers. The AARP Web site has a section dedicated to giving baby boomers advice on how to find work. The site also provides tips on how to find part-time or full-time employment, advice for starting a business, and ways to brush up on work-related skills. Other job resources are your local newspaper’s classified ad section, and Web sites like Snagajob.com, which list openings for hourly positions. 

Returning to work in your golden years may be a necessity, especially if you’re looking for ways to boost cash flow or enhance your health insurance coverage. But follow these steps before you accept an offer of employment. They can help you avoid unexpected tax surprises, plan for your benefits, and maybe even find a dream job.

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