Many of us are working hard now with hopes of a future that includes a relaxing retirement. But a funny thing happens once you retire from your job—you can get bored. Plus, you might find that your retirement savings aren’t enough to keep up with the post-retirement lifestyle you want.
A part-time job can help alleviate both the boredom and financial insecurity that can come with retirement, but there are certain things you should consider so that your extra income doesn’t affect your benefits.
Retirees rely on three primary sources of income:
- Personal savings
- Social Security benefits
A pension is a predetermined amount of money that an employer guarantees after you retire at a certain age. Not all companies offer a pension to their employees, but one can be an extremely valuable source of income if your job offers it. Federal and state government employees are common examples of workers who often qualify for pensions.
Since you are already guaranteed this money, working a part-time job won’t affect this type of benefit. The exception is if you go back to working for the same employer. If you plan to work for your previous employer again on a part-time basis, make sure you check first to see if the company will restrict your pension benefits.
Even if you have a pension in the works, it never hurts to have a backup form of retirement savings. During your working years, you likely opened one or more of the following:
- Roth or traditional IRA account
- Bank savings account
You cannot be penalized for working part-time if you are relying on a personal savings account as your source of retirement income. Because you put this money away on your own, you have already paid the taxes on it.
The situation is different with IRAs and 401(k) accounts. In both cases, the IRS requires that you wait until you are 59 ½ years old to take out the money—it will penalize you for taking the money out earlier than that. Still, working part-time won’t affect these types of retirement accounts if you wait to take out the cash until after you are 59 ½.
Social Security benefits are intended to help retirees pay for basic living expenses. Although you pay into the system for all your working years, the benefits aren’t generally large enough to pay for everything you might need. This is why many retirees who rely primarily on Social Security decide to work part-time.
When it comes to working a part-time job, your Social Security benefits will only be affected if you retire early. As long as you reach full retirement, you can work without penalty. The limits are as follows:
- If born before 1938, retiring under the age of 65.
- If born between 1943 and 1955, retiring under the age of 66.
- If born after 1955, retiring under the age of 67.
Jeff Rose is a certified financial planner and author of the blogs Good Financial Cents and LifeInsurancebyJeff.com. Learn more about his Debt Movement, where he’s inspiring people to pay off $10,000,000 of debt in 90 days.
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