Should You Un-Retire?

Key Takeaways:

• Retirees are choosing to return to work—to stay engaged and tackle new challenges, among other reasons.
• Working “in retirement” can impact Social Security benefits and other aspects of your finances.
• Leveraging contacts and previous employers can be an excellent way to reenter the workforce.

Millions of Americans retire every year. However, a significant chunk of those retirees eventually end up back in the workforce or seriously consider the prospect of earning a paycheck again.

Their reasons for doing so are many and varied. Moreover, this trend of “unretiring” has become increasingly common in recent years—driven in part by economic- and pandemic-related factors that have a growing number of retirees stepping back into the office, the shop, or the classroom.

Whether you’re among this group or have simply considered what a “working retirement” could look like for you, it’s a good time to get up to speed on the unretiring trend—particularly what it might mean for your overall financial picture.

Welcome back!

During the pandemic came the so-called Great Resignation, when around 2.4 million more Americans retired than had been expected, according to U.S. Labor Department data. However, the tight labor market and historically high inflation that eventually followed—along with other factors—prompted many new retirees to rethink the transition into their golden years.

Example: According to the Center for Retirement Research at Boston College, the number of employees who retired and then returned to work a year later more than doubled from 2020 to spring 2022. Meanwhile, a CNBC survey of those who retired during the pandemic found 68% would consider returning to work.

That said, the pandemic didn’t create the unretiring movement. In 2018, 13% of adults aged 45 or older said they were retired but working, while 28% said they were retired and looking for work, according to AARP.

Why un-retire?

The numbers reveal that retirees have been rejoining the workforce at a reasonably consistent pace over time. Of course, there’s an obvious question: Why do retirees end up working again?

Retirees cite several key reasons for unretiring. Chief among them:

• Financial need. Pre-retirement wealth planning is designed to help you avoid financial trouble during retirement. That said, unexpected costs can potentially create the need for additional income—if, say, health care costs spike (or, on a more positive note, you decide to buy another home or travel more than you expected). Financially supporting family members from various generations could also cause a cash crunch.
• Staying engaged. Retirees commonly complain of boredom, which isn’t terribly surprising given that rising life expectancies mean we end up spending much more time in retirement than previous generations. Consider that 32% of retirees in one survey by Forbes Health said they didn’t feel well prepared for the day-to-day experience of being retired. Work of some sort can help fill up hours in ways that feel meaningful and important.

The fact is, employment brings with it perks that many retirees end up missing. They include mental stimulation and physical activity, a broader sense of purpose, self-esteem, self-identity, and a built-in community (co-workers, customers, etc.) fostering friendships and social engagement.

While these may seem like “soft” benefits, they may lead to tangible positive outcomes. For example, a 2017 study in the European Journal of Epidemiology that tracked several essential cognitive functions of nearly 3,500 participants before and after retirement found that “all domains of cognition declined over time.” What’s more, verbal memory declined 38% faster after retirement than before retirement.

Of course, a late-in-life job isn’t the only way to stay mentally alert, physically active, and socially engaged. But given how familiar most of us are with having a career, it’s an option worth considering. Indeed, one-third of the survey's retirees said they wished they’d kept working longer in their careers.

• Tackling new challenges. Work broadly defines many people—particularly those who climbed the corporate ladder, owned a business or two, or otherwise pursued workplace success aggressively. For such driven people, retirement can be a time to take on new professional challenges or pursue careers they couldn’t in the past. Ex-entrepreneurs, for example, may become consultants to other companies looking to grow, or even mentors helping emerging business owners achieve breakthroughs.
• Helping a former employer. Some retirees return to their old companies to help their ex-bosses train a new crop of employees or address other initiatives. They might do this out of loyalty or a desire to give back to an employer who treated them well or for the other three reasons noted above. Returning to a familiar company and environment can potentially be a more comfortable way to unretire than pursuing an entirely new venture.

Financial implications of unretiring

From a wealth management perspective, it’s important to examine the potential implications of unretiring on your financial life. It’s quite possible that returning to work would affect some aspects of your wealth and be inconsequential to others.

Take Social Security, for example. Regardless of whether Social Security is a significant part of your retirement income stream, it’s smart to understand how working in retirement can impact this benefit that you’ve earned and got coming to you.

In general, it works like this. If you receive Social Security and work before your full retirement age, your benefit could be temporarily withheld. Individuals below full retirement age earning more than $22,320 in 2024 will have $1 taken out of their Social Security payments for every $2 earned above that cap. However, during the actual year you hit your full retirement age, you get a bit of a break: $1 in benefits is deducted for every $3 earned above $59,520 in 2024 for the months before full retirement age is reached. (Note: These earnings limits apply to self-employment, too.)

The good news: Once you reach full retirement age (66 for many people these days), you can work without your Social Security benefit being reduced. What’s more, your benefit amount will be recalculated starting with the month you hit full retirement age. You’ll also be credited for the months when your benefits were reduced or withheld because of any excess earnings over the limit. You might even receive higher benefit payments because you continued to earn.

Remember that you can stop or suspend Social Security payments if you go back to work. The rules depend on your age and may require you to pay back the benefits you’ve earned to date.

There’s also Medicare to consider. If you return to work for a company that offers private health insurance, you can enroll and still keep your Medicare coverage (as either primary or secondary coverage). You can drop Medicare Part B to save some money, but the rules can be tricky here, and you may end up getting penalized. If you later return to retirement (or lose the employer's health coverage), you’ll need to re-up for Part B within eight months to avoid a lifetime penalty. Moreover, if you keep your Medicare coverage but earn a sizable income from unretiring, be prepared to potentially pay more for Part B and Part D as a high-income earner.

Unretiring can also affect your pension and the minimum distributions you’re required to take from a 401(k) after a certain age. Your best bet is to consult with a trusted advisor about the various rules as they relate to you and your specific situation and to do a cost-benefit analysis of any moves you’re considering—whether they’re about retirement, unretirement, or re-retirement!

Going back in

There’s no single “right” or perfect way to reenter the workforce after retiring. One piece of good news is that many businesses are actively courting older Americans these days—a welcome change from the past when seniors were often intentionally overlooked for jobs.

Some innovative ways to get back into the workforce include:

1. Identify your value. Chances are, there were a handful of things you did exceptionally well that drove your professional success. Home in on those top skills—they’ll be the ones you market and offer to others. However, don’t overlook the fun aspect—you want to enjoy your work.
2. Start with a previous employer. Your deep knowledge of your role (and perhaps other roles) at a previous job may prompt an ex-employer to welcome you back with open arms—and a willingness to be highly flexible about when, where, and how you work. Look for opportunities to train new hires or act as a consultant to the compan
3. Leverage your contacts. If you have an extensive list of business contacts from many years of working, reach out to them right from the start. Don’t ignore this low-hanging fruit. You might offer your services directly to them or seek referrals through them. Either way, existing trusted relationships can help you build the foundation of your unretired life.

Conclusion

It seems likely that unretirement will become an increasingly popular option in the coming decades, especially given that most Americans are living longer and more active lives that require physical and mental stimulation. In addition, remote working has become more commonplace, allowing older workers who don’t want to commute to contribute meaningfully.

The upshot: If you’re currently retired or nearing the day when you’re ready to exit the workforce, keep unretirement on your radar.