Financial Considerations of Unretirement

What Is Unretirement?

Unretirement, the act of returning to paid work after formally retiring, is a noticeable post-pandemic trend. Dubbed the “Great Unretirement,” millions of older workers who left jobs during COVID have returned to the U.S. workforce since 2022. 

About 20% of older adults are currently working full-time or part-time, and an additional 7% are seeking employment. Notably, people aged 75+ are the fastest-growing demographic group of workers in the United States.

Factors Contributing to the Unretirement Trend

• Demand for workers with specific experience and skills
• High inflation resulting in increased living expenses
• Reduced fears about COVID infections

In addition, some older adults may no longer be caregivers for family members, which was one of the reasons they initially retired.

Why Older Adults Are Choosing to Unretire

People often seek additional income or financial strategies to address both immediate needs and long-term goals. At the same time, many pursue work for personal satisfaction and well-being, finding value in the emotional benefits, structured routine and social connections it provides.

There are several financial reasons that might drive an individual to seek additional income or financial planning strategies. High inflation and insufficient income to cover household expenses can create a pressing need for extra financial resources. Additionally, some individuals may be motivated by the desire to enhance their lifestyle, such as having money for travel and gifts. Others might aim to increase their Social Security benefits or postpone withdrawals from their savings to ensure their assets last longer.

Non-financial reasons for continuing to work can be deeply personal and fulfilling. Many individuals find professional fulfillment by engaging in work they are passionate about, which provides a strong sense of purpose and mental stimulation. Structured work can also help avoid boredom and provide a routine. Moreover, staying connected with others or helping people can be significant motivators. Research suggests that working longer may be linked to a reduced risk of dementia and increased longevity, adding to the appeal of remaining active in the workforce.

What Are the  Financial Benefits of Unretirement?

Unretirement offers several financial advantages that can enhance one’s long-term financial stability. By continuing to work, individuals can increase their Social Security benefits, expand their retirement savings, and take advantage of additional investment opportunities. This approach not only helps in maintaining valuable employee benefits but also ensures that retirement savings are utilized more efficiently.

• Increased Social Security Benefit: Workers’ earnings are reviewed annually. If later-life pay is among your 35 highest-earning years and replaces earnings from your young adult years, the Social Security Administration will recalculate your monthly benefit and increase the amount you receive.
• Increased Retirement Plan Savings: Unretirement as an employee may provide access to a tax-deferred employer retirement savings plan. Additionally, any older worker with earned income from a job or self-employment can contribute to a Roth or traditional IRA.
• Opportunity To Increase Other Savings: Extra income allows you to save more money in high-yield savings accounts, CDs and taxable brokerage account investments.
• Access to Employee Benefits: Depending on employer policies, unretired workers may continue to enjoy benefits such as group life and disability insurance, dental and vision care, flexible spending plans and other perks like shopping, travel and education.
• Fewer Years in Retirement: With a longer time period to contribute to retirement accounts and earn compound interest, and fewer years of withdrawals, your savings will last longer.

Financial Challenges and Considerations for Unretirement

Unretirement, or the decision to return to work after retiring, comes with its own set of financial challenges and considerations. Navigating these can be complex as it involves adjusting to new income dynamics, tax implications and potential impacts on Social Security benefits. Understanding these financial factors is crucial for making a smooth transition back into the workforce.

• Social Security Earnings Limit: Before reaching full retirement age (FRA), which is 67 for those born in 1960 or later, Social Security deducts $1 from benefits for every $2 earned above the earnings limit of $22,320 in 2024. Once you reach FRA, your benefits are recalculated to account for the withheld amounts, ensuring you receive credit for the benefits that were previously reduced.
• Income Tax implications: Income from unretiring, combined with other sources such as pensions, Social Security, annuities and dividends, may lead to taxes on a portion of Social Security benefits and/or other taxes like the 3.8% net investment income tax (NIIT).
• Tax Withholding Adjustments: If unretirement income is significant, it can increase your marginal tax rate. This may necessitate adjustments in tax withholding and/or quarterly estimated tax payments, as well as adherence to IRS safe harbor rules to avoid under-withholding penalties.
• Workplace Expenses: A job or self-employment will likely incur associated costs, including commuting, work attire, office supplies and professional development. Additionally, like all workers, older adults must pay 7.65% FICA tax on their earnings.

What Are the Legal and Health Considerations?

Federal and state laws aim to prevent age discrimination in the workplace for individuals age 40 and older, yet ageism persists, making it challenging for some to return to work after retirement. Health issues and other factors can further complicate the decision to unretire.

Navigating Medicare during unretirement can also be complex. If you drop Medicare Part B while receiving qualifying employer health benefits, you can re-enroll later. However, canceling a Medigap plan may hinder re-enrollment if you face health problems. Also, increased income from returning to work could lead to higher Medicare premiums through the Income-Related Monthly Adjustment Amount (IRMAA), adding another layer of financial complexity.

Strategic Financial Planning for Unretirement

Many older adults nearing or in retirement find they haven’t saved enough to retire comfortably. As a result, unretirement has become a popular strategy to catch up on retirement savings. Other common strategies include working longer before initially retiring and downsizing housing and other living expenses.

Income from unretirement can help make up for decades of inadequate retirement savings. For instance, the popular 4% Rule suggests withdrawing 4% from savings annually, adjusted for inflation, to avoid running out of money. Earning $40,000 through unretirement is equivalent to withdrawing 4% from a $1 million nest egg ($1,000,000 x .04 = $40,000).

A new household spending plan (budget) is needed to incorporate the additional income from unretirement. This extra money helps keep pace with recent price increases in areas like food, utilities, housing and insurance, while also boosting retirement savings.

Retirement goals and timelines also need to be revisited. Unretirement doesn’t have to be permanent, but it comes with an opportunity cost, such as less time for travel or spending with family and friends. Moreover, the ability to work beyond age 80 or 85 should be considered. Studies show that working a few extra years beyond the initially planned retirement age can significantly increase savings and extend their longevity.

Employment Opportunities for Unretirees

As more retirees seek to reenter the workforce, various employment opportunities have emerged to cater to their unique needs and skills. These unretirees bring a wealth of experience and a strong work ethic, making them valuable assets to employers. 

Here are some top employment opportunities for unretirees:

• Consulting: Leveraging years of expertise to provide insights and advice in their field.
• Part-Time Work: Flexibility and reduced hours in roles such as retail, hospitality or administrative positions.
• Mentorship and Coaching: Guiding and supporting younger professionals in their career development.
• Freelancing: Utilizing skills in writing, graphic design or other creative fields on a project-by-project basis.
• Remote Work: Engaging in roles that allow for working from home, such as customer service or virtual assistance.
• Non-Profit and Volunteering: Contributing to causes they are passionate about while staying active and engaged.
• Seasonal Jobs: Taking on temporary roles during peak times, such as tax preparation, holiday retail or agricultural work.
• Education and Training: Teaching or training others, whether in schools, corporate settings or community centers.

These opportunities provide unretirees with a variety of options to stay active, earn income and continue contributing to society while enjoying a flexible and fulfilling post-retirement career.

Unretirement is not a fad; it is a major redefinition of how people are spending the last third of their lives, with Baby Boomers leading the way. A 2024 study by ResumeBuilder.com found that one in eight retired individuals plans to go back to work. Major reasons for unretiring include insufficient savings, rising prices, boredom and a search for meaning and purpose.