The impact on your nest egg when you “un-retire”

Cracked golden egg isolated on a white background.

This past June, I spoke with reporter Rachel Sheedy of Kiplinger’s Retirement Report for an article addressing the financial impact of returning to work during retirement. The article, “A paychecks impact on retirement income benefits” examined a variety of retirement income sources—such as Social Security, pensions, annuity payments, etc. – and how each is affected by a retiree’s decision to “un-retire” and return to work.

Why go back to work?

For our clients, “un-retiring” is typically driven by personal rather than financial concerns. In fact, it doesn’t surprise us that accomplished and highly productive people want to find a way to get involved. However, as healthcare costs continue to skyrocket, we are finding that more people are willingly extending their employment in order to maintain their healthcare coverage. Recognizing that the need for healthcare services will tend to increase as we age, it is very difficult to gauge future costs as the system itself undergoes pervasive changes. In addition, the care available under one plan may not be available under another, so many have decided to defer retirement or return to the workplace.

What is affected?

For those returning to a second career, current income benefits might be affected.  In particular, your Social Security might be reduced if you exceed the earnings limits. At present, you would lose or pay back $1 of Social Security benefits for every $2 earned above the limit of $15,120 earned during the years prior to Full Retirement Age (FRA). During the year in which you turn full retirement age (FRA), you would lose or pay back $1 for every $3 earned in the months prior to FRA. Once a full month has passed after having reached your FRA, you can earn what you like without any reduction in Social Security benefits.

Pensions, on the other hand, will not be affected if you begin a new career – as long as you work for a different company than the one from which you are collecting pension benefits.  If you do return to work for the same company, you will need to contact their Human Resources office to determine how your benefits might be affected.

Plan ahead

There are many reasons for returning to work. For some it is a matter of economic necessity or looming financial concerns (such as the rapidly increasing health care costs noted above). In other cases, the motivation is more intrinsic: many of our clients enjoy accomplishment or simply want to stay active. No matter the reason may be for returning to work, it is always important to plan ahead. With this in mind, it is vital to keep a few “rules” in mind when you do decide that you are ready for retirement:

  1. Monitor your expenses closely. Retirement will completely change your daily routine, so it is difficult to know what you will really need until you retire. For this reason, it is prudent to plan for more expenses rather than less. Since the early retirement years can be very active, the initial costs may be greater than expected, which makes it vital to build a portfolio that will be sufficient for your needs.
  2. Make sure your portfolio reflects your needs, not a generic target or pre-packaged strategy. A well-designed portfolio is tailored to your specific needs and goals, recognizes other sources of incomes, addresses anticipated needs, and structures an all-weather portfolio that can help you achieve the long-term goals needed to enjoy a successful retirement.
  3. Have a discipline and stick to it. In our experience, financial success requires a clear strategy and a proven, consistent discipline that can guide you through both good and bad markets.