How Does Part-Time Work Affect Retirement?

Just because you are “retired” doesn’t mean you can’t work. In fact, according to the Bureau of Labor Statistics, over 42 million people over 55 will work part-time by 2026. Their reasons for working vary, but for most, they want the extra income or enjoy contributing. If you are retired or thinking about retirement and wonder whether or not a part-time job is right for you, then take into account these four considerations. So, does part-time work affect retirement?

Wages can affect Social Security payments.

As soon as you file for Social Security benefits, the SSA considers you to be “retired” whether you are still working or not. If you are younger than the full retirement age and earn more than the yearly earnings limit, then your benefit amount is reduced. In 2021, the limit of income you can earn and not reduce payments is $18,960.

However, once you reach full retirement age, your earnings no longer reduce your benefits, no matter how much you earn, plus the SSA will recalculate your benefit amount to include benefits that were withheld previously while you were working.

In other words, part-time income before age 67 not only gives you extra income but it can also increase your social security benefits later.

For more information, you can read the SSA bulletin HERE.

Part-time work could cause you to pay more income taxes.

Even though the IRS adjusts tax brackets according to inflation, the bottom bracket for singles caps at $9950. A simple raise of just $0.50/hr could cause you to move into a higher tax bracket, offsetting the gain. Make sure you ask a tax advisor what the optimum amount of income is for your situation.

You cannot defer taxes forever.

If you have deferred tax accounts such as IRAs, then you must take the required minimum distribution at the age of 72. If you do not, then you could be required to pay a penalty of as much as 50%. Knowing that you need to consider how retirement income, Social Security, AND part-time income will affect your tax liability. Once again, the best course of action is to consult with a tax or financial advisor so that you can lessen the impact and avoid penalties and taxes that you need not pay.

What are your plans for health insurance?

Because in the U.S. healthcare is often a work benefit, retirement can mean the loss of health insurance benefits. For those who retire before 65, when Medicare eligibility occurs, health issues can be disastrous. Individual insurance premiums can be very expensive or hard to obtain. Many companies offer part-time workers the option to participate in their health insurance programs. 

For example, the American Red Cross offers health benefits to part-time workers, putting in at least 20 hours/week.

Retirement is an enjoyable part of life. For many, it’s an opportunity to leave the grind of the 9-5 job and only work part-time. For others, it’s all about relaxing and enjoying life. If you like the idea of extra income and benefits that a part-time job can bring during retirement, just make sure you know the financial ramifications ahead of time. Do what’s best for you!