Working in retirement can bring many rewarding benefits. From social and personal growth to obvious financial rewards. But do it wrong and your retirement job can cost you plenty. Sadly, making some simple mistakes can have us end up with a retirement job that delivers a dose of regret. Having a little awareness goes a long way in avoiding any retirement job pitfalls. Here are some issues to look out for and plan around so you can walk the retirement job tightrope.

The Benefits of a Retirement Job Are Obvious

I had always planned on living a retire early and often lifestyle. Based on recent studies many people plan on having some type of retirement job. According to a 2017 Gallup poll 75% (3 out of 4) people plan on working in retirement. Part-time is the most popular option from that group. A 2015 AARP study reported “more than one-third of working Americans age 50-64 (37%) anticipate working for pay post retirement from their current career.”

Obviously, earning any income in retirement will at least mean a reduction in the amount we take from our retirement savings. That lets our tax-advantaged retirement accounts continue to grow. Starting a lucrative encore career could even mean adding more money to those retirement savings accounts. We may still be able to add earned income to a Roth IRA even in the year we turn 70 ½ and beyond when RMD is in play.

Working in retirement can be great. But we have to be smart about earning income from a retirement job and do it right or it can cost us way more than it should.

Avoiding Costly Mistakes When Considering A Retirement Job

Everyone’s situation is different. A smart strategy for working in retirement takes looking at how you have your retirement funding and benefits set up and from where it comes from.

I was aware of some of the pitfalls of working in retirement. I planned accordingly based on my retirement income and benefits. Yet I was still surprised at how easy it would be to misstep.

Retiring With A Severance Package

Many companies offer early out packages due to restructuring business direction, location, or personnel. If you began your retirement with a nice send-off in the way of a severance package, then you better pay attention to the fine print in the severance package contract. Many if not all severance packages will have a non-compete clause.

Now What?

If you figured you would accept the severance package, retire, and then take a retirement job in your same field, you best check the contract for any non-compete language. Most dictate a non-compete time frame. It usually starts from the date you left the business dictating that you must not compete in the same line of business. The last thing you want is a costly legal suit. Some states limit the ability of companies to enforce non-compete clauses. If your heart is set on a retirement job within in your same field during the non-compete clause time frame then first seek legal advice.

Increased Taxes and Managing Payment

Just like pre-retirement, the more you earn the bigger your chance of being pushed into a higher tax bracket. Knowing the tax brackets and making sure you either stay just below the next jump or make well enough that you won’t care is a necessary action to take. The challenge a retirement job brings is when your retirement funding is set and can’t be suspended or reduced while you work in retirement. Having a set private or public pension, an annuity, or taking early retirement SEPP 72t payments from your IRA, means that retirement income still comes even though you may now also have a paycheck.

In my case I had a 72t with a 10% Federal Tax withholding assigned to it. That was more than enough taxes withheld when I didn’t work in retirement. Those taxable 72t payments had to continue coming to me while I was working. Even though I filled out my retirement job W4 to withhold taxes as Married but at the higher single rate with Zero dependents, I owed over $1,000 when tax filing time came. That kind of under payment can cause an IRS tax penalty and interest charges.

What to do:  

Keep track of your income and run tax estimates. Make sure that you set aside money for taxes owed later and/or plan on paying additional quarterly estimated taxes if withholding will fall short. Being caught off guard at tax filing time is nobody’s idea of fun. Especially if your savings isn’t easily accessible.

Another consideration is stuffing as much of your retirement job income into tax deferred retirement accounts. Contributing to an IRA and/or 401K can help mitigate any retirement job tax issues. On my early retirement 5 month side-hustle I contributed 80% of my salary to a 401K. This reduced my retirement job’s taxable income for the year. It was set aside for later in retirement when I could easier manage my retirement income and tax rate.

Health Benefits

Medicare:

Once your reach age 65 you have to sign up for Medicare. If you’re already collecting Social Security, whether working in retirement or not, you will be automatically signed up for Medicare Part A. However, you must still sign up for a Part B plan or a 10% penalty may be levied against you. This is easy to overlook if you turn age 65 while working a retirement job that offers health insurance benefits. Start investigating all of the medicare rules before you reach age 65.

ACA (Obamacare):

Many people took advantage of using the ACA so that they could retire early before Medicare kicks in. A lot of retirement jobs do not provide health insurance benefits so the ACA makes it easy to accept these opportunities. If you have a low-cost of living, thus having a low enough income to qualify to receive health insurance subsidies, then pay close attention to the ACA income thresholds. Crossing them may cause your health subsidy being trimmed way back. This could cause you to pay thousands more a year for your health insurance. Take care to analyze the income to cost ratio so that your retirement job doesn’t cost you more than you earn from it.

Employer Retirement Healthcare:

If you retired with a medical benefit from your employer then pay close attention to the fine print and review the plan rules yearly. Things can change and you can run afoul of the rules causing you lose your hard-won retirement healthcare benefit.

After working over 30 years in my first career and company I had earned a retirement health benefit where I was allowed to buy into the employee health plan. With my first retirement job came a low-cost employee health insurance benefit that was 75% less than my retirement health insurance premium. I suspended my retirement healthcare as allowed and went on the retirement job’s health plan for the year.

The next year the retirement health benefit rules changed and benefit suspension was no longer supported. It became a “use it or lose it” retirement healthcare policy going forward. If I had missed the fine print on the end of year healthcare election documents I could have been dropped. Losing a 30 year employment benefit and once again being forced to work for healthcare or thrown to the expensive individual market, praying the ACA stays intact until I turn age 65, could have been a costly mistake.  

Social Security

If you take on a retirement job after you have started receiving Social Security then there are two separate issues that can come into play.

• Having your Social Security payment reduced
• Causing your Social Security to be taxable

Reduced Social Security Payment:

If you started Social Security before your full retirement age and take on a retirement job making more than the yearly earnings limit, Social Security will reduce your benefit payment. The reduction is $1 for every $2 earned above the annual limit. The 2018 earnings limit is only $17,040. For the year you reach full retirement age, the reduction is $1 for every $3 earned above the annual limit but it is only applied to earnings before your birthday. The earnings limit is also set higher at $45,360. There is no Social Security limit on earnings for working in retirement after your full retirement age.

Note: Reduced Social Security benefit amounts are merely delayed. Reduced amounts are added back to your benefit and monthly payments once you reach full retirement age.

Social Security Becoming Taxable:

Regardless of your age, a chunk of your Social Security can become taxable. According to the Social Security Administration:

file a federal tax return as an “individual” and your combined income* is

• between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.

• more than $34,000, up to 85 percent of your benefits may be taxable.

file a joint return, and you and your spouse have a combined income* that is

• between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits
• more than $44,000, up to 85 percent of your benefits may be taxable.

*Combined income is calculated the following way- AGI (wages, self-employment income, interest, dividends, IRA/401K withdrawals, taxable pension/annuity, etc.) + Non-taxable interest. (interest excluded from taxes on your federal return but considered as part of the taxable Social Security threshold calculation) + ½ of your Social Security benefits. (individual, or joint-you and spouse combined).

If you are considering a retirement job and haven’t already claimed Social Security, you may want to delay beginning your benefits, if you can afford to. That way you will earn a higher benefit amount later. You also won’t have to deal with retirement job related Social Security payment reduction and/or taxable Social Security thresholds.

Be aware of these thresholds if you have already begun your Social Security benefits. That way you can calculate the impacts and the actions you can take to reduce unnecessary cost and make your retirement job worth doing.

Retirement Job Trap

One of the easiest retirement job mistakes to make is finding yourself trapped in the wrong job. This is a costly mistake because we end up spending our time doing something we are not happily doing. Choose your retirement opportunity wisely. We all only have so much time left to spend so we shouldn’t be wasteful with it. Even a carefully chosen job can later have run its course. It’s far too easy to become trapped because of our old pre-retirement work habits of business obligation and loyalty.

I certainly experienced that in my retirement job endeavours. The longer I was there the more the business added to my duties beyond my desired working in retirement happiness thresholds.

Be sure to check your retirement job happiness account frequently. If you find it being depleted then your retirement job is costing you way too much. Make the necessary adjustments to your working arrangement, retire again and find another retirement job, or re-enter a happiness based work-free phase of retirement.

Just because your company doesn’t support phased retirements doesn’t mean you have to delay your retirement. Staying in their full-time rat race grind may be the only solution they offer. But it isn’t the only solution for anyone wishing to ease into retirement using a phased retirement approach.

A recent study done by the Transamerica Center for Retirement Studies (TCRS) found that 77% of employers actually believe many of their employees plan to continue working after they retire. 47% of these employers also say many of their employees envision they’re using a phased retirement transition approach for their retirement.

Yet only 31% of the employers that Transamerica surveyed said they would let their employees shift from full-time to part-time employment. Not surprisingly, only 27% of employers said they would allow phased retirement seeking employees to move into less stressful or demanding positions.

Caution is Needed for Employer Allowed Phased Retirement

Retiring employees do need to be careful entering into a formal or informal phased retirement work arrangement with their employer.

Careful attention has to made into the impacts that a reduced schedule or a lower stress/lower paying position will have on any defined retirement benefits there may be. The defined benefit rules and the formulas they use are tough to get around. The last thing you want is for your phased retirement time dragging your retirement benefit amount down.

Other active employee benefits like medical insurance and paid-time-off/Vacation will also need to be carefully examined. Entering into a phased retirement arrangement will most likely impact them.

Signs to Look for Before Staying With Your Company in a Phased Retirement Agreement

Being able to have a phased retirement with one’s current employer is certainly the most comfortable way to go. We already understand the business, the work processes, and the culture. But based on my first career I believe caution is justified.

I think my corporate world experience isn’t unique and is a shared experience. Entering into a phased retirement agreement with one’s employer may not be the no-brainer decision you might think.

Think about the following:

Does your company have a habit of expecting employee loyalty but never reciprocates?

In other words, do they treat long-time loyal and dedicated employees as just a disposable number? Your phased retirement gig may be just short-term to ring out all they can before letting you leave on their terms, not necessarily yours. They will and do value younger employees who they think they can retain longer-term.

Do employees who have transferred to a new position or have been promoted get sucked back into their previous roles every time feces hits the fan?

Do you think your phased retirement agreement will stand if your company has a habit of doing that? Are you OK with a prolonged or indefinite return to your pre-retirement job obligations?

Has there been times when your company has backtracked away from promises made?

Think bonuses, raises, 401k match, pensions, health insurance, promotions, etc. When they do, did they include executives in the pain or did they state they decided not to include them in order to attract and retain the best for the company? Do you think they will honor your phased retirement agreement for as long as you want, need, or agreed to? If your company throws employees under the bus but never its executives then maybe you should think twice about extending your relationship with them.

Just take a moment and really think about your experience with the company.

If your career there has been nothing but a stellar experience then I think you are in the minority. If it’s that good I would also question why even consider a phased retirement. Just enjoy it until you can feel like fully retiring. If you have concerns now about the company then why enter into a phased retirement agreement and continue with any negative feelings in your life?

For my first early retirement I wasn’t thinking “phased retirement”.

I was fully in a “retire early and often” mindset. I have successfully done that with some rewarding and interesting post-retirement work. In hindsight some of the things I did while preparing for that included asking myself the above questions about my long-time employer.

Let’s just say that I have never worked for them again in post-retirement. I admit that there is some truth in the saying “better the devil you know (than the devil you don’t)”. However I found entering into a new relationship to be in my favor when working in retirement.

I could work without a legacy of career obligation baggage to be dragged back into. I could create a retirement lifestyle where I would only seek opportunities aligned with my interests and passions. That includes only working under my terms for as long as I wanted to.

Not having to worry about upsetting or angering a long-time employer who may still have control over some of my retirement benefits, thus having control over me. That to me is a big deal.

Why Creating Your Own Phased Retirement May Be the Better Way

First off, understand what kind of phased retirement you really want. Even if your company does offer a phased retirement option it may not be aligned with what you envision.

• Are you looking to go part-time?  
• Change job duties to something with less stress and less responsibilities?
• Wanting to only work certain parts of the year or specific seasons?  

Also try to figure out how long you want the arrangement to last. I think the fact anyone is willing to bring up phased retirement with their employer means they aren’t afraid to signal their retirement intentions. Hopefully this is done only after knowing one could actually retire because employers may sideswipe someone who have prematurely signaled their retirement intentions.

Rather than thinking only “phased retirement”, open up your options by thinking of retirement as the absence of needing to work. You can think of it as a phased retirement or as I had planned to do and have successfully done. That is retiring early and often.

If your plan is to go directly into your desired phased retirement position then begin finding, interviewing, and accepting a position before announcing your retirement. This will at least allow for you to explore your options over only attempting to stay at your existing company.

Here are some reasons supporting why you should create your own phased retirement:

Make a clean break from your employer. No worries of negatively impacting any retirement benefits through a reduced salary (less stress-pay/fewer hours) phased retirement agreement.

Free to choose opportunities aligned with your interests and passions. Not what your employer thinks is their best way to use you. It’s easier to limit your duties to agreed upon responsibilities and negotiate rather than be dictated when our role needs to be changed.

No previous legacy obligation of work to be dragged back into in any time of crisis, real or otherwise. That certainly could circumvent your phased retirement wants and needs.

New working environments offer new experiences. In people, work, education, and culture. It may not be as comfortable starting out but it makes up for that by being more exciting. We all stay in our ruts too long.

It’s easier to move on or as I call it “retire early again” when there are no long-term ties. Knowing that I can simply leave once a retirement job isn’t checking off all my boxes anymore makes working in retirement fun and not a dreaded burden.

Last Words on Creating Your Own Phased Retirement

The company I worked for over 3 decades did not offer any phased retirement options. It was “their way or the highway”. I waited some months after retiring early before I began looking for my first dream retirement job. It all worked out wonderfully. That doesn’t mean that it didn’t take some effort on my part.

I have several pages on this Leisure Freak site that might be of help:

Retiring Early and Often 

How to Choose Your Retirement Job 

How To Find Your Early Retirement Job 

Retire Early and Start Your Own Business 

Check under the Retiring Early and Often tab at the top of the page and there are pages on retiree resume  and interview  tips, handling the dreaded “overqualified”  issue, and even how you can increase your wealth by retiring early and often. 

Before I close out this post I would be remiss if I didn’t mention the fly in the ointment. It’s called health insurance. If you retire without a retirement medical benefit then health insurance must be considered. A phased retirement agreement at your employer that allows for employee group medical insurance does carry some weight.

When looking at creating your own phased retirement, include health insurance in your decision process. Look at staying with the same employer, looking for new opportunities that provide health care benefits, or buying health insurance in the single payer market.  

If I was able to retire early and have a successful encore career then you can too.

When I retired early from a long career at the age of 51 it was late 2009. Unemployment was high and the economy was low. It took having a plan of action for a successful encore career to happen for me.

People have many reasons for wanting a retirement job or starting an encore career. There are obvious social and financial benefits. For me there were some things I really wanted to learn more about and experience. Getting paid to do it was the frosting on the cake.

I had always planned to retire early and often.   I needed to set aside my decades long engineer persona and all of its associated all-consuming obligation. My wish was to spend more of my time doing things closer aligned with my passions and interests.

I didn’t need to return to work. What I wanted to do was cherry-pick opportunities that concentrated on the skills I enjoyed using. I was and still am grateful for all that the earlier version of me and my career gave me. But I needed to move-on and reinvent myself  to living a more passion-driven lifestyle.

I’d like to share my seven-step strategy for landing a successful encore career.

Second Act, Here I Come

My 7 Step Plan for Scoring a Successful Encore Career

Phase one of my plan started with taking some time off to decompress and enjoy some alarm clock freedom. Phase one had it’s unique importance. It’s where I could mentally shed decades of institutional career-driven conditioning. That and embrace the new life to be lived on my terms. Phase two is where the 7 step encore career actions came into full play.

Step 1: It’s All About and Not About Money

Have Your Financial House in Order

Obviously my retiring early meant having a good handle on my finances and lifestyle cost. In my case my early retirement funding paid for my primary living expenses. This allowed me to remove money from the retirement job decision process. With money off the table I can ask myself whether I would really want to pursue an opportunity. That question is a tool I use in what I describe as “retiring well”. 

Even if lifestyle funding isn’t at 100% for the long-term, knowing where we are financially removes any job search desperation. I believe part of my encore career success was the lack of financial desperation in my opportunity selection process. I Chose well. It was at no time salary driven. I also believe having a lack of financial desperation helps in the interview process.

Encore career success isn’t just about money. It’s about scoring an opportunity aligned with our values, passions, and what we are interested in doing now.  What I did was focus on the opportunity first. I then only negotiated an appropriate salary after being offered the position.

Step 2: What Floats Your Boat?

Identify Your Passions and Interests

I asked myself, what do I want? The whole idea is picking the right encore career opportunity.  I began with a self-assessment of my passions and interests. There were specific industry and positions I wanted to pursue.

I then listed my relevant payable skills and divided them into 2 columns. Those I enjoy doing and those that I don’t. I only targeted opportunities that tilted heavily to the payable skills I enjoyed using. There will always be a need to do the things from the less desired payable skills column. The encore career idea I embraced was to limit my exposure to the non-enjoyed column skills as much as possible through purposeful opportunity targeting.

Step 3: What’s Your Story?

Be Able to Enthusiastically Answer the “Your Story” Question

The question can come in many forms. Tell me about yourself. Why did you retire? Why are you interested in doing XYZ? That’s when understanding my story became important. In my story I am the protagonist. I am more than a chronological list of my experiences. My resume certainly lays out that professional experience and accomplishments list. I didn’t want to just roll through that boring narrative when given the opportunity to tell my story.

Choosing an encore career path different from one’s first long career can be challenging. Instead of my early retirement and subsequent search for a new opportunity looking like I’m some kind of unpredictable, undependable flake. I wanted my story to be about coherent transition. My story is about all my experiences and discovering what I am really good at, love doing, and what I have passion for. It shows how I am pursuing opportunities that are on a logical path forward to grow and be productive in those areas. It’s why I should be seen as an asset and not someone making a nonsensical disconnected jump.

What I found necessary for encore career success is telling my story by adding emotion and interest to the chronological history. I used feelings to set myself apart by adding how I felt during certain milestones or personal discoveries. I also emphasized the impact it had on me, the business, and/or others. My belief in my story is projected out when telling it.

Step 4: Keep Growing

Add New Skills that are Aligned with Your Early Retirement and Encore Career Goals

I am very curious and that is a big part of my early retirement. I’m always exploring new concepts and adding new skills. I had many interests that went in different directions when I was looking at opportunities. Even though I was targeting opportunities based on what I loved doing, the job ads listed things I had never done or wasn’t as proficient at doing.

I took free classes that were offered at my library. It was a gardening class and had nothing to do with my eventual encore career. It was about other encore avenues I was exploring. I also did volunteer work in what was another path unrelated to my eventual encore career. Although they did not result in an encore career the experience was still rewarding and helped me in other ways.

I did sit for a few sessions with a friend of mine who was an Excel and SQL-pro. He tutored me on advanced spreadsheet and database query skills. They were skills aligned with my targeted technical encore interests. Those skill learning sessions were directly related to my eventual coveted retirement job. There are many ways to learn new skills.   

When we keep growing in areas of our interest and passions it makes our early retirement fuller and only improves our chances for starting a successful encore career.

Step 5: Practice Makes Perfect

Test the Waters and Yourself

I actually started interviewing a year before I retired from my first career. At that time (2008) job opportunities were limited due to the deepening recession. Doing it gave me practice. Job interviewing is like a game or dance. The better we are the more likely we are to stand out. It’s something we get better at the more we do it. Our resume facts are the same. But it’s all about feeling and acting more natural and comfortable in the role of self-promotion and being judged.

I also did some volunteer work and a side hustle. The volunteer work was very physical and allowed me to test my interest and passion for the outdoor recreation industry. For the side hustle I was a private consultant. It was a contract related to telecom litigation and paid extremely well. I was able to explore my self-employment path in an area I thought I enjoyed from my long career. In both of these examples I decided the experience showed me that they weren’t exactly what I wanted to do in my retirement.

The volunteer work was too physical for my 50ish old body and I couldn’t easily keep up with my younger team members. I had to set aside that targeted path and honor my limitations. The other was too close to my first career. Requiring heavy use of skills I preferred to limit using going forward regardless of how much it paid. However it did bring to view how much I really loved some of the other skills I had to use. The experiences fine-tuned and narrowed my focus to the space where my eventual encore career lived.

Step 6: Get Off Your Island

Stay Connected To and Keep Expanding Your Network

After retiring it’s easy to withdraw from our professional connections. Our focus happily changes and the last thing we want is to stay connected to anything associated to the past grind. That withdrawal is what I allowed during my first phase of my early retirement (career mindset decompression). It was a time I concentrated on building my social circle. I began reconnecting to my professional circle in phase 2. I did this by email. No big drawn out dialog. Just reconnecting and reminding them of my retire early and often plans that many thought was crazy or funny when I mentioned it during my pre-retirement years.

I also expanded my network using LinkedIn. There were many people who had left my orbit over the years that I had worked with and respected. I reconnected and mentioned my intentions when appropriate. What all of this did was lock-in what I was going to do. It gets the word out but more than that it made me accountable to myself. I then started mentioning to my social circle that I was always open to the right opportunity. Retiring early and often became a great conversation topic at social events when others discussed work matters.

My successful encore career came out of LinkedIn. An email came to me asking if I would be interested in talking about an opportunity. Using social networks like LinkedIn is a necessary tool but it is important to go beyond them. Through face to face social conversation I met executives and other key connections to add to my network. Just by talking about what I did and what I wanted to now do.

Step 7: Throw Your Name Into the Hat

Post Your Resume Online and Talk to Everyone

I did what everyone does. I started searching for opportunities that were posted online or in the newspaper. Unfortunately applying for those openings and getting a call back during those times had a very low success rate. Hopefully things are better for that now. I did successfully get a lot of contact from simply having my resume posted online and viewable to recruiters. I have used Snag-A-Job, Monster, CareerBuilder, Dice and InDeed.

Obviously not all targeted jobs use recruiters to fill positions. If you have no network connections for a foot in the door, then the good old-fashioned way of going on site or to their online portal and applying is the only way to get your resume in front of someone. My stepped down retirement jobs came that way. The resume posting sites I mentioned above allow you to directly apply your posted resume to job listings. 

A key tip is to talk to everyone you can. Even when they are calling or emailing about a position that you know upfront you wouldn’t be interested in. Don’t just ignore them. Have fun and learn what’s going on. It is easier talking with them when you don’t want the job. I would return their calls/emails and ask for more details. After listening to their pitch I then would explain why I didn’t feel it was a good fit and what it was I was looking for. I would be totally honest. I would also share the name and contact details of anyone else I knew that was looking for an opportunity in that field. What this did was create a certain rapport and a new professional connection. I still get contacted from many of them even after removing my online resume over 5 years ago.

In Closing

I believe that retirement is the absence of NEEDING to work, not the absence of working. That doesn’t mean I will always do paid work or even look for new opportunities. But when I do it is something I really WANT to do. Parts of all seven of these steps came fully into play for me to score my encore career. They will again if I choose to do another opportunity.

Now that I’m in my second early retirement I look back at all of my retirement work opportunities far more fondly than my first career. I believe that’s because they were all on my terms and aligned with what I valued doing. Doing what I wanted to do for as long as I wanted them in my life.  

There is nothing special about me. We all have our own unique skill-sets and experiences. I hope by sharing my approach for scoring a successful encore career that it inspires you to see a way to set your own retirement job strategy into motion.