Back to Work! Why More Retirees Are Saying Yes to “Unretiring”

Retirement is often painted as a time to relax, travel, or indulge in hobbies. But for many, it turns out that stepping away from work isn’t as fulfilling as they expected—or it's financially challenging. This is why a growing number of retirees are rethinking their plans and heading back into the workforce, a trend often referred to as “unretiring.” Let’s explore why retirees are making this choice, the benefits and downsides of working after retirement, and what you should consider if you’re on the fence about returning to work.

Why Are Retirees Returning to Work?

During the COVID-19 pandemic, millions of people retired, many earlier than they had initially planned. By 2022, over 1.5 million retirees decided to go back to work. The reasons behind this "unretirement" trend are varied but mostly revolve around two main factors: financial security and a sense of purpose.

Calculate Your What-If Scenarios

1. Financial Needs

Retirement doesn’t come cheap. Housing, food, utilities, and healthcare are ongoing costs that can take a substantial chunk out of your savings. Around 48% of retirees returning to work do so because they need the income to cover their basic expenses. Inflation and market fluctuations can also eat into your retirement nest egg, making additional income essential to maintaining your quality of life.

2. Emotional and Social Benefits

Another key motivation is social and emotional well-being. About 45% of retirees go back to work for social connections and mental stimulation. Work provides structure, a sense of identity, and daily interaction with others—all important components for staying happy and mentally sharp. Many retirees find that being part of a team or taking on a meaningful role adds purpose to their lives, especially after leaving behind a career that defined much of their identity.

3. Flexibility in Work Options

The desire to work doesn’t mean retirees want to jump back into a nine-to-five grind. Many prefer part-time roles, freelance work, or consulting opportunities that allow them to set their schedules. Exploring new career paths—maybe turning a lifelong passion into a part-time job—also appeals to many, offering them the chance to do something fulfilling without the stress of a full-time career.

Financial Benefits of Working After Retirement

Returning to work after retiring can significantly boost your financial situation. Here are some of the key financial advantages:

“Working longer offers key financial benefits, like delaying retirement withdrawals and Social Security claims.”

Covering Essential Expenses Without Depleting Savings

Continuing to work means you can use the income for daily expenses rather than drawing down your retirement savings. This helps extend the life of your savings, giving you more flexibility to spend on hobbies or other discretionary items. It’s a way to protect your financial health and maintain your standard of living even in uncertain economic times.

Delaying Retirement Account Withdrawals

The longer you work, the longer you can delay taking withdrawals from your retirement accounts, such as a 401(k) or IRA. This is especially important because it gives your savings more time to grow tax-deferred, which could lead to a larger balance later on. Working a few additional years, even part-time, can significantly reduce the chances that you’ll outlive your retirement funds.

Maximizing Social Security Benefits

If you haven’t started taking Social Security yet, delaying the start of your benefits can lead to a bigger monthly payment later on. Each year you delay (up to age 70) increases your benefit by about 8%. If you need the income now, this might not be an option, but if you can continue working, those increased benefits can make a huge difference over time.

Extra Contributions to Retirement Accounts

If your employer still offers a 401(k), you can continue contributing to it, even making catch-up contributions if you’re over 50. In 2024, those over 50 can contribute an extra $7500 to their 401(k) and an additional $1,000 across IRAs. This is an excellent way to bulk up savings for the later years of retirement, particularly if you didn’t manage to save enough earlier in life.

How Working Affects Social Security

While the extra income is a plus, working in retirement does affect your Social Security benefits, especially if you haven’t yet reached full retirement age (FRA). Here’s how it works:

Calculate Your What-If Scenarios

• Before Full Retirement Age: If you’re under FRA and earning above a certain limit ($22,320 for 2024), your benefits will be reduced. Specifically, $1 is deducted for every $2 earned above the limit. Once you reach your FRA, you’ll get a credit for these deductions, which can increase your future benefits.

• After Full Retirement Age: Once you reach FRA (between 66 and 67, depending on your birth year), you can earn as much as you want without it affecting your Social Security benefits. In fact, additional years of high earnings could even increase your future benefit amount if they replace lower-earning years in your benefit calculation.

Emotional and Social Benefits of Working After Retirement

Beyond finances, returning to work can be immensely beneficial for your mental and social health. Here’s why:

Fight Cognitive Decline

Work can be a great way to keep your brain active. Whether it’s solving problems, engaging in projects, or simply interacting with different people, staying mentally engaged can help reduce the risk of cognitive decline, which is often a concern for retirees. Studies have shown that retirees who stay mentally active tend to have better memory and overall cognitive function.

Social Connections

Loneliness can be a real issue in retirement. A job, even a part-time one, keeps you socially connected and part of a community, which is crucial for emotional well-being. The regular interaction that comes with working can prevent feelings of isolation and keep you engaged with the world around you.

Maintain a Sense of Purpose

Many people derive their identity from their careers. Transitioning from full-time work to retirement can be a shock. Finding a role that offers purpose—whether it’s consulting, working with a charity, or even turning a hobby into a part-time income source—can help maintain your self-esteem and give you something to look forward to each day.

The Downsides of Working After Retirement

While there are plenty of upsides, working after retirement isn’t without its challenges. Here are a few potential downsides:

Reduced Personal Time

One of the major drawbacks is less time for yourself. Whether you were looking forward to travel, hobbies, or spending time with family, working can reduce the amount of leisure time available. It’s essential to find a balance between work and relaxation so you don’t feel overwhelmed or resentful.

Calculate Your What-If Scenarios

Tax Implications

If you’re not yet at your FRA and you start drawing Social Security benefits, earning additional income could push you into a higher tax bracket. Up to 85% of your Social Security benefits could become taxable, which might make working less attractive financially. Understanding how your earnings will impact your taxes is a key step before deciding to work again.

Impact on Health and Stress Levels

Working in retirement can add stress, especially if the job is demanding. You should evaluate whether the benefits outweigh the added pressure. If the work environment isn’t supportive or you find it physically taxing, it might not be worth the effort.

Finding the Right Post-Retirement Job

If you’re considering returning to work, it’s important to find a role that aligns with your interests, skills, and health needs. Here are some tips for finding a fulfilling job:

• Identify What You Enjoy: Reflect on your career and think about what you enjoyed most. Was it helping people, working with numbers, or managing projects? Use these insights to find a post-retirement role that brings you satisfaction.

• Consider Part-Time or Freelance Work: Flexibility is key in retirement. Part-time or freelance roles can allow you to work on your own schedule, giving you time for relaxation and family.

• Keep Physical and Emotional Health in Mind: Ensure the role isn’t too physically demanding, and consider how it might impact your stress levels and overall well-being.

Bottom Line

Choosing to work after retirement is a deeply personal decision. While there are many financial, emotional, and social benefits, it’s important to weigh these against the potential downsides, such as less personal time and tax implications. If you decide to work, make sure it’s something that adds value to your life, either through income, social connections, or a sense of purpose. And always consult a financial advisor to ensure your decision aligns with your overall retirement plan.

Calculate Your What-If Scenarios

Reference

AARP. (n.d.). Working after retirement. Retrieved from https://www.aarp.org/work/careers/working-after-retirement/

BMC Public Health. (2024). Retrieved from https://bmcpublichealth.biomedcentral.com/articles/10.1186/s12889-024-18161-1

National Center for Biotechnology Information. (n.d.). Retrieved from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4004604/

National Council on Aging (NCOA). (n.d.). Get more money from social security: 7 tips to max out your benefits. Retrieved from https://www.ncoa.org/article/get-more-money-from-social-security-7-tips-to-max-out-your-benefits/

SmartAsset. (n.d.). Disadvantages of working after retirement. Retrieved from https://smartasset.com/retirement/disadvantages-of-working-after-retirement

Social Security Administration (SSA). (n.d.). Benefits planner: Delayed retirement credits. Retrieved from https://www.ssa.gov/benefits/retirement/planner/delayret.html