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How ‘Unretiring’ Can Affect Your Social Security Benefits

As retirement approaches, you may worry about whether you’ve saved enough money to cover expenses for the rest of your life. And as inflation and economic uncertainty take their toll on retirement plans, you’re not alone. Unfortunately, because of this growing concern, many people like yourself are finding that they may need to return to work.

According to CNBC, one in every six retirees were contemplating returning to work in 2023. Additionally, the U.S. Bureau of Labor and Statistics (BLS) predicts that the labor force’s 75-and-older population will increase by 96.5% by 2030. Statistics like these set the stage for discussing how returning to work may affect your Social Security benefits.

Before you decide whether to return to work, it’s crucial to understand how that could affect your Social Security benefits. Knowing the details can help you prepare for potential income reductions and plan for retirement.

When Does Going Back to Work Affect Your Social Security Benefits? 

The good news is if you’re over full retirement age (currently 66 if you were born between 1943 and ‘54), you can work as much as you want and your benefits won’t be affected.

For those below this age, the situation is a bit more complicated. If you make over $21,240 annually in earned income, your benefits could be temporarily reduced. However, this reduction isn’t permanent; once you reach full retirement age, your benefits will be recalculated to account for any months that they were withheld.

How To Calculate the Financial Benefits of “Unretiring” 

If you’re considering going back to work, there are several factors to consider before making a decision. One of the most important is your current financial situation. You need to assess whether you have enough savings to retire for good or if you need to continue working for a few more years to supplement your income.

If you’re close to retirement age, it may not be worth it to unretire. Your Social Security benefits may be reduced if you earn income while receiving them.

Other important factors to consider:

  • Your health and energy levels. Are you physically able to continue working?
  • The availability of jobs in your field. Is there a demand for the skills you possess?
  • The potential earnings from returning to work. Will it really make financial sense for you to unretire?
  • The impact on your retirement lifestyle. Do you need to make any changes to accommodate going back to work?

Weighing these factors can help you decide if unretiring is worth the time, money, and effort.

How To Supplement Your Income Without “Unretiring” 

While you may feel like you need to return to work, there are other ways to supplement your income without affecting your Social Security benefits. While each option has its pros and cons, they can be viable alternatives to working full-time and can help in varying life situations.

Deferred Annuity  

A deferred annuity is an insurance contract designed to generate supplementary income for retirement. It’s an investment vehicle that allows you to make one-time or recurring deposits, which grow tax-deferred until you’re ready to withdraw the funds. The payouts can either be in the form of a lump sum or a reliable stream of income.

Investing in a deferred annuity offers you several benefits:

  • It provides a structured income stream that can help supplement retirement needs. Additionally, because deferred annuities accumulate over time, they could present a steady and reliable source of income, which may ensure you don’t run out of money during your golden years.
  • It is a low-risk investment tool as it provides guaranteed growth, meaning your savings remain protected when the stock market takes a dip or interest rates lapse. This helps you enjoy financial security and stability, especially when the market faces economic turmoil.
  • It provides tax-deferred growth, meaning you pay taxes on the deposit at a later date when you withdraw the money. This tax advantage allows the funds in the annuity to accumulate more money over time and can translate into significant savings.

An annuity’s ability to provide guaranteed returns and tax-deferred growth makes it an excellent investment tool to help you achieve long-term financial security.

Rental Income 

Did you know you can earn passive income during retirement by renting out extra space in your home? According to the IRS, rental income can be deducted from rental expenses, which is great news for anyone looking to maximize their earning potential. Whether you own or use a property, such as a vacation home or investment property, you can earn money through renting.

In fact, you may be able to rent out a portion of your primary residence to tenants for extra income. So, if you’re looking for a way to supplement your retirement savings, consider exploring rental income options. It may be a smart financial move that pays off in the long run.

Certificate of Deposit (CD)

Consider a certificate of deposit, or CD, to help save for retirement. A CD is a savings product that earns interest on a lump sum for a fixed period, usually ranging from six months up to five years.

A CD differs from a regular savings account because it requires a fixed amount of money for a set time. This means that during the term of the CD, you won’t be able to access your funds without paying penalties. However, the benefit of a CD is that it offers a fixed interest rate, which means you lock in a specific rate of return for the entire term of the CD.

While CDs can be a safe way to save for retirement, they may not be especially lucrative. CD interest rates tend to be lower than other investment products such as stocks and mutual funds. However, they’re insured by the FDIC up to a certain amount, so you can be confident in your investment. 

Reverse Mortgage   

A reverse mortgage loan is available to homeowners aged 62 and older, allowing you to convert a portion of your home equity into cash. Unlike traditional mortgages, to which you make monthly payments, with a reverse mortgage the lender pays you in the form of a lump sum, monthly payments, a line of credit, or a combination of the three.

One of the most significant benefits of a reverse mortgage is that it can quickly provide extra income when you need it most. For instance, if the stock market experiences a significant downturn, a reverse mortgage could provide the necessary financial cushion to help bridge the gap until the market stabilizes. So, if you’re considering this option, it’s essential to gain a thorough understanding of how they work and the benefits and drawbacks before making any decisions.

With various options available, research to determine which type of reverse mortgage is best for your situation. With some forethought and planning, you can determine how a reverse mortgage works best for your retirement goals.

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.  

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement. 

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