Like Tom Brady, many retirees are getting back in the game: They're pausing Social Security benefits and going back to work to fight inflation with a steady paycheck and corporate-sponsored health care.
This year's exploding costs, recession worries and the stock market's choppy performance have accelerated the trend of un-retiring. But even without those factors, retirees were restless. According to a 2019 report from Rand Corporation, 40% of workers age 65 or older had previously retired and then returned to the workforce.
And the overall number of "mature" workers is rising. Census Bureau data from May 2022 shows 22% of the U.S. workforce is now 65 and older, up from 19.5% in May of 2020.
"Retirement is no longer a date," said Rob Williams, managing director of financial planning, retirement income and wealth management at Charles Schwab. "Modern retirement can be flexible, and going back to work can be part of it."
"I've been talking to a lot of new clients, and rising costs are a big concern," said David Rae, a certified financial planner with DRM Wealth Management in Hollywood, Calif. "They're afraid their retirement plans are not up to date with the current economic environment."
Rae also says some retirees are returning to work out of boredom and because the shutdowns of the Covid pandemic left them feeling isolated.
Going Back To Work And Social Security Benefits
Only 19% of Americans say their wages have kept pace with inflation, according to the July IBD/TIPP poll. And 76% worry about maintaining their current living standard.
Returning to work can have many benefits. Still, older workers need to understand the impact it will have on their Social Security benefits.
If you're not yet at "full retirement age," which is 66 to 67 years old for many people, and you've been collecting Social Security benefits, those payments will shrink. If you work a full year, the government may deduct $1 from your Social Security benefits for every $2 earned above the annual income limit. For 2022, the annual limit is $19,560.
Read up on this and other un-retiring information at the Social Security website.
The good news? Those under 70 years old who've applied for benefits within the last 12 months "can pause their benefits and restart them again," said Williams. But un-retired workers can only do this once, and they must repay any benefits they've received.
"Don't panic," said Williams. "You're not losing that money. It's a temporary deferral of your Social Security," but you'll receive the benefits you're entitled to when you restart your payments.
Williams says a retirement plan helps retirees better manage their money and feel more confident.
Medicare Vs. Employer-Offered Insurance
Some retirees, especially those under 65, choose to go back to work in part due to high health insurance costs for individual plans. Employer-offered plans can be more affordable and comprehensive than individual plans.
It gets trickier, however, if you're above age 65. Keep in mind that many employer-offered health plans have high deductibles and out-of-pocket maximums.
With some plans, the out-of-pocket max can be $8,000 to $10,000. Medicare has affordable copays. So if you have a surgery planned, it may make more sense to stay with Medicare. In any case, those 65 and older should make sure they register with Medicare.
Medicare and Medigap have specific enrollment periods. However, if you chose to enroll in employer-offered insurance, you may be able to enroll in Medicare and Medigap after age 65 without penalties.
"Health insurance is so complicated, and it's expensive," said Rae. Retirees returning to work should carefully evaluate their options.
And there's another consideration: When you're enrolled in Medicare, you're not allowed to contribute to a health savings account (HSA), which enables employees to set aside pretax money for medical costs.
Career Restart: Risk Tolerance, Taxes And Fund Distributions
Retirees going back to work may also want to reconsider some of their investment decisions. "If you go back to work, you may not need as much money from your savings and might have the capacity to take on more risk," said Williams.
Furthermore, if your earnings are significant, "You may want to put more money in an IRA and lower your taxes," said Rae.
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Social Security encourages older workers to save more in retirement accounts with its "catch-up" rules. Workers 50 and older are allowed under this rule to contribute an extra amount annually to 401(k) and IRA plans.
When you turn 72 things change. The IRS then requires you to start drawing down your retirement funds from an IRA or 401(k). Roth IRAs don't require withdrawals until after the death of the owner.
The penalty if you don't meet the minimum drawdown rules for an IRA or 401(k) is steep. You'll face a potential 50% tax penalty.
But be mindful of tax consequences as you take withdrawals. Seek advice from a tax expert to meet the required minimum distributions, or more, and minimize your taxes.
