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Returning to Work After You've Retired

No matter how much you've looked forward to retirement, you might find yourself missing the social interaction and financial benefits you enjoyed when you were employed. Perhaps getting a full- or part-time job will enable you to rely less on your retirement savings, leaving more to potentially grow for the future. Or maybe you're looking forward to pursuing your dream of owning a business. Whether working during retirement is a choice—or a necessity—make sure you understand the financial implications.

Finding the right work opportunity

Many people spend 20 years or more in retirement, so it's important to do something you love. If you don't quite know what that is, or you aren't ready to commit to a permanent position, you might try working in a contract job, or signing up with a temporary employment agency that will allow you to work when, and where, you wish. Some agencies even offer health and retirement benefits. If it's been a while since you searched for work, get in touch with a local career counselor to get tips on preparing a job application or resume, and to learn more about the jobs available in your community.

To help you determine your salary requirements and how many hours you'll work, spend some time reviewing your retirement plan, focusing on your retirement income needs. Then limit your job search to businesses that offer the right combination of pay, benefits and working environment.

Working for yourself

Once you retire, you may finally be ready to turn your ideas and talents into a business. Mature entrepreneurs often have the time and experience necessary to become successful business owners. However, make sure you have enough capital to start up and run your business—it may take longer than you think for your business to become profitable. And don't jeopardize your retirement security by relying on your credit cards, life savings and home equity to finance your business.

Will working affect your Social Security benefits?

If you're receiving Social Security retirement benefits and you're younger than your full retirement age (65 to 67), your benefits will be reduced if you earn more than a certain amount. In 2010, $1 in benefits will be withheld for every $2 you earn over the annual earnings limit of $14,160. A higher earnings limit applies in the year you reach full retirement age. If you earn more than this limit ($37,680 in 2010), $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 every month thereafter, no matter how much you earn. (But note that even if your benefits are withheld, that reduction isn't permanent. Your benefit will be increased at full retirement age to account for the amount withheld because of your earlier earnings.)

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, such as bonuses, commissions and fees. Pensions, annuities, IRA payments and investment income won't reduce your benefit.

Also, 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 depends on your personal circumstances.

What about income taxes? In general, your Social Security benefit won't be subject to income tax if that's the only income you receive during the year. But if you work during retirement (or you 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 help you determine if any part of your Social Security benefit is subject to income tax.

Will working affect your pension?

Unless you plan to return to work with your former employer, your pension benefit won't be affected—you can work, receive a salary from your new employer, and also receive your pension benefit from your former employer. However, if you are considering taking another job—even part-time—with your former employer, check with your plan administrator. Some plans require that your pension benefit be suspended if you retire and then return to work for the same employer.