The COVID-19 pandemic reshaped our world in many ways, including how we think about retirement. As the economy faced unprecedented challenges in 2020, millions of individuals chose to retire earlier than planned due to various reasons. However, a significant number of these “COVID-19 retirees” have made the decision to return to work, a phenomenon often referred to as “unretiring.” This article explores the key insights behind this trend, the motivations that drive retirees back to work, and the potential impact on Social Security benefits.
The Unretiring Trend
Research from the Federal Reserve of St. Louis reveals that the pandemic-induced economic turmoil resulted in 2.4 million excess retirements in 2020. However, by March 2022, approximately 1.5 million retirees had reentered the workforce. While the pandemic played a unique role in creating this large wave of retirees, the trend of working in retirement is far from new. According to the Retirement Saving & Spending Study by T. Rowe Price, about 20% of retirees are working either full-time or part-time, with an additional 7% actively seeking employment.
Motivations Behind Unretirement
The decision to return to work in retirement often stems from a combination of financial considerations and the pursuit of social and emotional benefits. The study revealed that nearly half of those working in retirement (48%) do so primarily for financial reasons. For these individuals, work provides a crucial source of income, helping to bolster their financial stability during retirement.
Conversely, 45% of retirees choose to work in retirement for social and emotional benefits. Many retirees view part-time work as a way to ease the transition into retirement gradually. Those working full-time often do so to find mental stimulation and professional fulfillment, as well as the freedom to work on their own terms rather than out of necessity.
Motivations also vary by gender and marital status. Women and single retirees are more likely to cite income as their primary motivator for working in retirement, while men are more likely to emphasize the importance of social connections in their decision to work.
Finding New Ways to Work
Returning to work in retirement doesn’t necessarily entail a return to one’s previous career or work arrangement. Many retirees explore new vocations, part-time work, or consulting opportunities that align with their passions and build upon their professional experience. Additionally, remote work, flexible arrangements, and part-time roles enable retirees to strike a work-life balance tailored to their new life stage.
Strengthening Retirement Plans
Working in retirement, or unretiring, can have significant financial benefits. By delaying retirement account withdrawals and claiming Social Security benefits, retirees can shorten the time their assets need to support them in retirement. Even working for just a few additional years can substantially improve the probability of not outliving one’s retirement funds.
Delaying retirement until full retirement age (FRA) or beyond can have a profound impact on the sustainability of one’s retirement savings. Higher Social Security payments resulting from this delay can lead to better portfolio sustainability over a potentially decades-long retirement horizon.
The Impact on Social Security Benefits
Before deciding to unretire, individuals should consider how it might affect their Social Security benefits. Delaying the claim for Social Security benefits beyond full retirement age can lead to higher monthly benefits, increasing by 8% for each year past FRA, up to age 70. Conversely, claiming benefits early at age 62 can result in nearly a 30% reduction in benefits.
If retirees who initially claimed benefits return to work before their FRA, they have 12 months to apply for a withdrawal of benefits. Repaying the received benefits allows them to delay claiming further, leading to increased monthly benefits through delayed retirement credits.
However, working in retirement while receiving Social Security benefits may reduce benefit amounts due to income limitations. Exceeding the earned income limit can lead to a reduction in benefits, though this can be recalculated upon reaching FRA.
The trend of unretiring, or returning to work in retirement, continues to gain momentum. While financial considerations are a driving force, the desire for social connections and emotional fulfillment also plays a significant role. Retirees looking to unretire should carefully assess the impact on their Social Security benefits and explore opportunities to enhance their financial stability over time. Ultimately, working in retirement can be a powerful way to achieve both financial well-being and a sense of purpose, making it a viable option for many retirees.