While the pandemic may have induced a large wave of retirees to leave and later return to the workforce, a new report finds the trend of “working in retirement” is continuing to grow.
According to T. Rowe Price’s recent Retirement Saving & Spending Study, around 20% of retirees are working either full-time or part-time, while another 7% of respondents indicated they are looking for employment, post pandemic. The study looked at how and why retirees choose to work and, not surprisingly, found that there are a variety of benefits and motivations.
In the corresponding report, Unretiring: Why Recent Retirees Want to Go Back to Work, Judith Ward, a thought leadership director at T. Rowe Price, describes how nearly half (48%) of those working in retirement felt they needed to work for financial reasons and were mostly from the lower-asset thresholds. The survey data also reveals that 45% of respondents chose to work for social and emotional benefits, motivated by the desire for mental stimulation and professional fulfillment.
“Many retirees either choose to work or need work to be included in their retirement lifestyle,” explains Ward. “The decision can have many powerful positive effects, not least of which is financial well-being.”
Motivations also vary along gender and marital lines. Women and single retirees are more likely than men or married couples to cite income as the primary motivator for working in retirement. Many single people also found work to be a good use of time in retirement. Men were more likely to cite social connections as motivation to work, Ward notes.
Meanwhile, returning to work doesn’t always mean returning to a previous career or work arrangement, the report further observes, adding that many people choose new vocations or part-time work as a good transition strategy. To that end, they may explore causes or fields that align with their passions or build on their professional experience via consulting arrangements.
Boosting Retirement Savings
And as one might presume, working longer is also a powerful way to strengthen your retirement plan. In fact, some of the largest financial benefits of additional years of work are delaying retirement account withdrawals and delaying claiming Social Security benefits. Even a few additional years of income have a positive effect on the probability that you won’t outlive your funds, explains Ward.
To that end, the report provides a hypothetical example of a 62-year-old female who earns $100,000 per year, has $900,000 set aside for retirement, and expects to spend about $63,000 per year in retirement. If she retires this year, there is a 68% chance that she will not outlive her funds in retirement, T. Rowe Price projects. In contrast, if she delays retirement until age 65, her probability of success rises to 91%. Waiting until full retirement age (FRA) at age 67 increases that probability to 97%, the projections further show.
“The improvement in this hypothetical scenario illustrates how higher Social Security payments result in better portfolio sustainability over a retirement horizon that could last decades,” says Ward. “Delaying retirement is that powerful.”
Meanwhile, having additional years of earned income can also give workers more time to contribute to their savings, including making catch-up contributions. In 2023, those age 50 or older can contribute an additional $7,500 to their 401(k) plan each year, as well as an extra $1,000 across traditional and Roth IRAs combined, the report notes.
One important point for those who stopped working before their FRA and claimed benefits but then decided to go back to work is that they have 12 months to apply for a withdrawal of benefits. “In doing so, you would need to repay what you have received, and Social Security will act as if you never took benefits in the first place. If you have reached your FRA but are not yet 70, you can suspend payments and earn delayed retirement credits, increasing your monthly benefit,” Ward advises.
