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Retirement is one of those life stages that seems inevitable. From an early age, it’s pounded into us: You have to save for retirement, and you have to plan for retirement, which pretty much implies that you have to retire. And after a few decades spent working in order to pay the bills, retirement certainly becomes increasingly tempting.
But retirement doesn’t work for everybody. A lot of people suffer from boredom and depression after retiring; it’s easy to lose your sense of identity and purpose, your plans might not work out the way you expected, and the sudden influx of free time can be overwhelming. And no matter how carefully you plan your retirement, there are many, many ways your money may not stretch as far as you thought, and you might find yourself in a bit of a pickle if your savings start to run out. All of this might lead you to wonder if you made a mistake—and whether you can change your mind.
The answer is: Yes, you can “unretire” and go back to work (assuming you can land a full-time, part-time, or freelance gig). If retirement isn’t working for you emotionally or financially (or both), you can reverse the process—but there are a few consequences to consider.
Social Security
For most people, Social Security benefits are a big part of their retirement plan, so you should be aware that unretiring can affect them. Your legal “full” retirement age is determined by your birth year. If you retired last year when you were 60, for example, the Social Security Administration considers that an early retirement, because your “full” retirement age is 67.
If you’re under that full retirement age and start earning money again, they will take back $1 for every $2 you earn over a specific limit. That limit gets adjusted all the time; in 2023 it’s $21,240. So if you earn $31,240 this year, Social Security will reduce your benefits by $5,000. In the year you reach full retirement age—which in this example would be 2029—they’ll take back $1 for every $3 you earn above a different limit, which right now is set at $56,520. So if you earn $68,520 in 2029, they’ll claw back $4,000 from your benefits.
Once you reach full retirement, these limits vanish and you can earn as much money as you like. If you realize that retirement isn’t working for you pretty quickly, you might also have the option of withdrawing your Social Security application and repaying any benefits you’ve received. As long as you’re under the age of 70 and you do so within a year of your initial application, you can live off your unretired income and still get full SS benefits when you reach full retirement age—or wait until age 70 when you’ll get the maximum SS payout.
Medicare
If you’re 65 or older and covered by Medicare and/or Part B, you might find yourself responsible for the Part B premiums, which are normally taken from your Social Security payouts. And if you earn more than $97,000 ($194,000 for a married couple filing their taxes jointly), those premiums will be higher, and while Medicare is free for most people if you unretire and earn a high income, you might wind up getting billed for that, too.
Retirement accounts
If you retired early, you probably know that you can’t withdraw funds from a 401(k) or IRA until you’re age 59½—unless you want to pay a 10% penalty (with a few exceptions outlined by the IRS). That will still be true if you unretire before that age. On the other hand, even if you’re old enough to take money from your retirement accounts without a penalty, going back to work might allow you to leave that money alone and live off of your new income, growing your nest egg and making your financial future much brighter.
If you’re receiving a pension or other benefits from a former employer and plan to go back to work for them in some capacity, make sure you check the details of those benefits to ensure they aren’t stopped or negatively affected if you come back. You might need to be a contractor or freelancer to avoid triggering problems.
Tax brackets and RMDs
When you turn 73, the IRS requires you to withdraw required minimum distributions (RMDs) from your retirement accounts (with a few exceptions, like Roth IRAs). Since the money in those RMDs—which you generally can’t avoid—is taxable, this could push you into a new tax bracket when combined with your shiny new unretirement income. There are strategies to deal with this, of course, and hey—it’s nice to have more money and more problems sometimes. But it’s a consideration: Don’t let going back to work turn your finances into a shambles, or you might find yourself facing a huge tax bill.
from Lifehacker https://ift.tt/X9DVFdx
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