What is driving retired workers back to the labor force?
Spencer Betts — a certified financial planner and chief compliance officer with Bickling Financial Services in Lexington, Massachusetts — says some retirees could be heading back to work due to high job vacancies and wage increases.
Older workers may also feel safer now than they did during the peak of the pandemic, especially if they’re fully vaccinated.
St. Louis Federal Reserve economist Miguel Faria-e-Castro reported over 2.5 million excess retirements due to COVID-19 as of August 2021. Many of these individuals could be heading back to work now that opportunities are available and money is tight.
“Retirement is a misnomer — there is no more retirement,” says Tarnoff. “I think that older workers are going to be caught in a tight squeeze, because they don't have the income overall to keep up with inflation.”
He adds that plenty of older workers may have been pushed out of the workforce during pandemic-related layoffs but didn’t voluntarily choose to retire.
Inflation hit a 40-year-high of 8.6% in May, and everything from groceries to gas is rapidly ballooning in price.
The mean income for households where at least one person is 65 years old or older was at just over $44,000 in 2017, according to the most recent data available from the U.S. Census Bureau. Social Security typically makes up the highest proportion of that income, at $16,560, and then earnings ($13,950).
Betts notes that plenty of older workers may still opt for part-time work once they hit retirement age.
“I think the biggest trend — and it's been happening for many years — is … sliding into retirement, where it’s like, ‘I'm not going to work 40 hours, I'm going to work 30, 20, 10…’”
Higher income means higher taxes
A retiree heading back into the workforce isn’t necessarily going to obtain the same job and salary range that they had before they retired. If you’re looking to come out of retirement, you need to watch out for the potential tax implications that a higher income brings in.
Betts provides an example of a retiree with a consulting gig, which often means filing a 1099 form — a tax form for individuals earning money from a person or entity who is not their employer.
“You might get the same amount of salary. But you're now responsible for both sides of the Social Security tax. So that's naturally like a 9% reduction in your pay.”
Workers who have tapped into their Social Security benefits pay 6.2% on their earnings up to $147,000 — while those who are self-employed face a 12.4% cut that can be offset by income tax provisions.
Your age and at what point you start receiving your benefits can also affect how much Social Security you’re receiving. The full retirement age for those born in 1943 through 1954 is 66, and then gradually increases each year until you hit 67 for those born in 1960 or later.
If you’re below full retirement age, you can make up to $19,560 and receive all your benefits. “If you make more than that, then for every $2 over that number, you gotta give $1 of your Social Security back,” says Betts.
In the year you reach your retirement age, you can make up to $51,960 to receive your full benefits. For every $3 over the limit, $1 will be withheld.
Depending on where you live and how high your state income tax rate is, almost half of your earnings can go to the tax man, adds Betts. “So make sure you don't price yourself too low.”
What else should you know when applying to jobs?
Betts says that if you have the ability to bring in more income, it’s usually going to be a net positive in the long-term.
“They're probably taking less out of their investments, they're able to save more,” he explains. “Maybe they can put a lot of that towards future retirements, towards an IRA or investment account, or paying down debt more quickly.”
When applying for a job, Tarnoff says the most important thing is to focus on your value as an employee — and consider adding new skills to your repertoire as well.
“It's vital that older workers dive in and roll up their sleeves along with everybody else. There is no reason why an older worker can't learn the same remote work skills and technology skills as a younger worker.”
Cleaning up your LinkedIn page and networking is crucial. Tarnoff also recommends zeroing in on the opportunities that best suit your skills and experience, instead of applying haphazardly to hundreds of job postings.
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