Many people look forward to retirement for one big reason: not having to work. And after spending years in the labor force, it's understandable that seniors would want a break.
Unfortunately, many Americans can't afford to retire without continuing to work to some degree, so it's not surprising to learn that 67% of current workers say they'll continue working even after claiming Social Security, according to the May 2020 Simplywise Retirement Confidence Index. Thankfully, that decision will likely buy them more financial security when they're older.
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Working and collecting Social Security: How does it work?
Once you reach full retirement age, which is the age at which you're entitled to your full monthly Social Security benefit based on your earnings record, you can earn as much money as you'd like and still receive your benefit in full. Full retirement age is either 66, 67, or somewhere in between, depending on what year you were born in.
If you work and collect Social Security simultaneously before reaching full retirement age, you'll be subject to what's known as the earnings test. That means you can only earn a certain amount of money each year before having a portion of your benefits withheld.
The earnings-test limit changes from year to year. Currently, it's $18,240, and wages above that threshold result in benefit withholding. But the benefits you don't get right away due to exceeding that threshold aren't lost forever; they're added to your Social Security income once you reach full retirement age. Also, the earnings-test limit this year for seniors who will be reaching full retirement age in 2020, but aren't there yet, is $48,600.
Why work in retirement?
There are plenty of good reasons to hold down a job in retirement, even if you're collecting money from Social Security. For one thing, you may need the income. Social Security will generally only replace about 40% of your pre-retirement wages if you're an average earner. Most seniors need about twice that amount to live comfortably. If you don't have a lot in the way of retirement savings, you may need income from a job to bridge that gap.
Also, working is a relatively inexpensive way to fill your days. If money is limited in retirement, it gives you a chance to stay busy without spending any. And that's important, because boredom during retirement can lead to real mental health issues -- issues you would no doubt prefer to avoid.
Finally, holding down a job can keep you mentally sharp and help you stay in shape, especially if that job requires you to move around, or perhaps walk to work. The result? Better health and lower healthcare costs.
It's encouraging to see that most people plan to keep working even once they have Social Security benefits coming in. If the idea of working in retirement doesn't appeal to you, remember that you don't have to operate a cash register or hold down a boring desk job. You can start your own business, or turn a hobby you love into an income stream. The choices are virtually endless, so don't write off the idea of working as a senior until you've explored different options.
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