Working in Retirement: A Retirement Reserve Parachute?
On the surface, skydiving seems reckless. Humans plummet towards the earth from 10,000 feet risking life and limb. Parachutes turn this dangerous activity into a recreational one. Each skydiver is equipped with two parachutes to ensure that even if the first malfunctions, the second is ready to carry the diver safely to the ground. Working in retirement is surprisingly similar. With the right planning, taking on additional work can be a fun and rewarding part of retirement, but relying on employment during retirement can be like skydiving without a reserve parachute.
There are various reasons why people choose to work in retirement. Some people might need to work to support themselves, their children, or other loved ones. Others may want to build new skills, stay active, or help fund travel and other hobbies.
Working in retirement can also be an exciting prospect. You could start a new business, a second career, or scale back work with your employer to ease into retirement.
Unfortunately, for many retirees finding a job is challenging.
Health, training, and age discrimination frequently act as barriers to re-entering the workforce. Fidelity Investment’s 2020 retirement survey uncovered a large gap between the number of pre-retirees that planned to work in retirement (68%) and the number of retirees working in retirement (28%).
As a result, relying on employment income during retirement can be problematic. Ideally, employment income would make up one part of a broader retirement plan to ensure your financial stability in the event that a job is difficult to find.
If you are determined to work in retirement, don’t be discouraged, but don’t wing it. By proactively building new skills and networking with potential employers, you can help make yourself a more desirable candidate for many jobs.
If you want to start your own business it can be valuable to complete the necessary groundwork (business plan, registering your business, etc.) in advance to put yourself in a good position to hit the ground running after you retire.
Before you begin working it is also important to consider the financial implications of gaining this additional income.
Remember, employment income is taxable. Any money you make working will be added to your taxable income from other sources. This additional income can increase your tax payment or decrease your tax refund at the end of the fiscal year.
Retirement income might also alter your government benefits. For example, monthly Old Age Security payments decrease when you reach a certain income threshold. On the other hand, paying into the Canadian Pension Plan while working during your sixties can increase your monthly payments in the long run.
As you prepare to dive into retirement continuing to work can be an appealing and at times a necessary option. Similar to a skydiver relying on a single parachute, it is not advisable to depend solely upon employment income to carry you through retirement. The unpredictability of health and the volatility of the job market makes employment income unreliable for many retirees. Including post-retirement work as one source of income in a larger retirement plan can help supplement your savings and contribute to a fun and rewarding retirement, while ensuring financial stability if finding work becomes challenging.