Considering Unretirement? Here’s What You Need to Know About Investing, Income, and Taxes
Retirement isn’t always the final chapter—it’s becoming more common for retirees to return to work, whether out of financial necessity, personal fulfillment, or a mix of both. But how does unretirement impact your investment strategy, income planning, and taxes? Here’s what you need to know.
1. How Does Returning to Work Affect Your Investment Strategy?
If you’re considering unretirement, your investment approach will depend on your financial needs:
Cash Flow Considerations – Do you need additional income to cover monthly expenses? If so, you might need a more aggressive portfolio with stocks and commodities (like oil, crypto or gold) to generate higher returns. If your financial situation is stable, a conservative approach focused on capital preservation may be wiser.
Retirement Account Contributions – If you’re earning income, you can continue contributing to a Roth IRA at any age. Roth IRAs have no required minimum distributions (RMDs), making them a great long-term investment vehicle. However, traditional IRA and 401(k) contributions stop at age 70½ due to RMD rules.
2. Key Financial Considerations Before Unretiring
Many people return to work with unrealistic expectations. Two common misconceptions:
Assuming they can work indefinitely – Physical and mental demands may limit opportunities, especially in certain jobs. Even roles like Walmart greeters have physical criteria that older workers may struggle to meet.
Expecting to earn the same salary as before – Wages in unretirement are often lower than peak earning years.
To ensure unretirement makes financial sense, consider:
How much income do you need? Will your salary be enough to cover expenses?
Will Social Security help? If you’re 62 or older, Social Security may cover some or all of your costs, but returning to work could reduce benefits.
Do you have additional income sources? Pensions, dividends, rental income, or other assets can supplement your earnings.
Can you monetize your home? Renting a portion of your home could create passive income.
Can you reduce expenses? Downsizing or budgeting adjustments can make a big difference.
Can your portfolio generate more income? Increasing your portfolio’s annual return could reduce reliance on work.
3. How Does Unretirement Impact Your Drawdown Rate and Social Security?
Returning to work can affect how and when you withdraw from retirement accounts:
Drawdown Rate Considerations – Factors like expenses, taxes, inflation, and life expectancy play a role. If you’re earning an income, you may be able to reduce or delay withdrawals from retirement accounts, helping your savings last longer.
Social Security Adjustments – If you claim Social Security early but return to work, your benefits may be reduced based on your earnings. Consulting a tax professional can help you determine the best timing.
4. What Are the Tax Implications of Unretirement?
Returning to work affects your tax situation, particularly regarding retirement accounts:
Traditional IRA & 401(k) Contributions – As mentioned earlier, RMDs apply to traditional retirement accounts at 70½, requiring you to withdraw a minimum amount each year.
Potential Tax Benefits – Working longer may allow you to defer RMDs and continue contributing to employer-sponsored plans, potentially reducing taxable income.
Employer Retirement Plans – If your new job offers profit-sharing or a 401(k) plan, consult a tax professional to understand any tax implications or penalties.
5. How to Align Your Investment and Financial Strategy with Unretirement
Whether you're planning for retirement or considering a return to work, a well-structured investment strategy is key. Here are three critical factors to evaluate:
What rate of return do you need? Determine the annual return required to sustain your lifestyle.
Does your portfolio need adjustments? If unretirement affects your income, you may need to shift between conservative and aggressive investments or revise your budget.
How will you manage portfolio timing? Understanding when to take profits, hold cash, or invest in stocks and bonds is essential for long-term success.
Unretirement can provide financial flexibility and personal fulfillment, but it requires careful planning. By understanding how it impacts investments, taxes, and income, you can make informed decisions that align with your long-term financial security.