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Should you consider part-time retirement?

If you’re nearing retirement or have already left a full-time career, you may be considering the idea of working part-time. A partial retirement or even “unretiring” temporarily could be an ideal way to supplement your retirement income, provide mental stimulation and social perks — all while maintaining a flexible schedule with ample free time.

What are the benefits of a partial retirement?

Steve Gambino, Assistant Vice President – Commerce Financial Advisors , says working part-time in retirement can be a good way to transition to full-time retirement. “Many people don’t have an idea of what retirement looks like, and really knowing that dictates your retirement planning. Many go from a lifetime of saving to suddenly having to spend that money,” he explains.

Easing into full-time retirement by working part-time can have other benefits, too. You can continue to earn an income to live more comfortably now or boost your savings for when you fully retire. It gives you the opportunity to explore new hobbies and discover how you might use your free time, while also adjusting to a lighter work schedule and a potentially leaner budget. Staying socially connected and engaged in work you enjoy can be good for your mental health, too.

How part-time retirement impacts your Social Security benefits

One of the most important factors to consider is the impact to your Social Security benefits. According to the Social Security Administration, you can work and collect benefits at the same time, but depending on your age, there is a limit to how much you can earn and still receive full benefits. If you’re younger than your full retirement age (FRA) and earn more than the yearly earnings limit, $1 will be deducted from your benefit payment for every $2 earned above the limit. That limit is $19,560 for 2022 and will increase to $21,240 for 2023. Once you’ve reached FRA, your earnings no longer reduce your benefits.

“To avoid a penalty if you continue working, decide in advance how much you want to earn,” suggests Gambino. “If you’re getting Social Security before your FRA, consider talking to your employer to see if they’ll pay you up to the allowable amount to avoid having a portion of those benefits withheld.” You can learn more about the earnings test limit and see how your earnings could impact your benefit payments here.

How to plan for a partial or phased retirement

If the idea of scaling back your hours without leaving the workforce for good sounds appealing, Gambino says it’s important to have a plan in place before you consider part-time retirement. “If you’re a few years away from retirement, now is the time to sit down with your financial advisor and talk about ways to manage income and avoid making costly mistakes.”

Here are a few options for moving from full-time to part-time employment:

  • Talk to your current employer about moving from full- to part-time hours, or perhaps to a different part-time position within the company. Find out if working fewer hours would impact your eligibility for company health insurance benefits, especially if you’re under age 65 and not yet eligible for Medicare.
  • Ask your employer if they would consider a phased retirement program where your hours are gradually decreased over time. Many companies have adopted this arrangement due to current worker shortages and the need for experienced employees with a specific skill set.
  • Consider finding a new job with part-time hours, freelancing, becoming a consultant in your area of expertise or even turning a hobby into a side business. Get more tips for launching a post-retirement career.

Important factors to consider before you retire part-time

In addition to how your age and earnings may impact your Social Security benefits, consider how a difference in income, whether lower or higher, could impact your budget and tax bracket. Gambino notes that to supplement your phased retirement income, you may want to withdraw from retirement accounts. “However, if you make withdrawals from certain types of IRAs and 401(k)s, you will have to pay taxes on the funds you withdraw, so you’ll want to figure this into your planning and decision-making about part-time retirement,” he adds .

Other considerations include your vision of retirement, such as where you want to live, how you want to spend your time, whether you want to travel and so on. Your overall health can also factor into your choices.

“Deciding to move forward with part-time retirement should be planned, not made as a quick decision,” says Gambino. “Take everything into account, including asking yourself when you want to start withdrawing from retirement accounts and collecting Social Security. As with any major life decision, having a plan and consulting with a financial advisor is the best way to determine if this option makes the most sense for you.”

Plan now for retirement on your terms

Whether you’re approaching retirement or are already retired, a partial retirement can offer both financial and psychological benefits compared to going from full-time employment directly to full retirement. A Commerce financial advisor can help you review your options and offer solutions to create a retirement scenario that best fits your needs and your budget.

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