For many workers, the sudden shift from being an employee to becoming a retiree can be difficult. Some employers, especially in the public sector, have started offering “phased retirement” which allows an employee to continue working on a part-time basis. If this arrangement is available to you, it can make for a smoother transition from full-time employment to retirement, and your employer benefits by retaining your services while easing in someone new or reconfiguring the division of work. Some of these phased retirement plans even allow semi-retired workers to access all or part of their pension benefits.
Obviously, you want to avoid drawing any principal out of savings and retirement plans for as long as possible, to keep that money growing and earning interest. The degree to which you can support yourself with the money you earn working part-time will determine whether you need to draw on your pension benefits at all.
Another advantage of delaying full retirement is that you can continue to build tax-deferred savings in your IRA or employer-sponsored retirement accounts. Keep in mind, though, that you may be required to start taking minimum distributions from these plans once you reach age 70 ½ if you don’t want to be hit with substantial penalties.
It’s important to consider the different ways continuing to work will impact your particular retirement plan. For example, some pension plans base your retirement benefit on your final average pay, so if you’re working part time your pension benefit may be reduced because your pay has decreased. If reducing your work hours will lower your pension earnings, you might be better off quitting the position and begin taking your full pension earnings, then returning later as an independent contractor or part-timer.
Also, if you are under the normal retirement age, remember that income from a job may affect the amount of your Social Security retirement benefits. Once you reach normal retirement age you can earn as much as you want to without impacting your Social Security retirement benefits.
Regardless of your situation, it makes sense to sit down with a certified financial planner to review your options. Contact us at Safe Harbor Financial for a free consultation – we can help.