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Planning to work part-time in retirement?

Learn what you stand to gain — and tips to start preparing now.

Older man happily carries produce in a supermarket.

What's your vision of retirement? Making rounds on the golf course — or heading back to the office?

For many Americans today, working in retirement — even part-time — is clearly in the picture. According to the U.S. Census Bureau, 16.2 percent of people age 65 or older continue to fuel the national labor force (PDF: 631 KB), even as they near an age when they could start receiving full Social Security benefits.

If you have no desire to stop working — or if the extra cash of a part-time job appeals to you — consider these things.

Analyze your income streams.

When he talks to pre-retirees, "I look at the 'retirement paycheck,'" says Jeff Cullen, managing director of 401(k) Advisors, Inc.1 in Chicago. "You know the income it takes to run the household and pay your bills. Will you have enough saved to live on the withdrawals from the account?"

If not, part-time employment in retirement may prove valuable. For example, a part-time job paying $12,000 per year could provide a retirement income stream comparable to taking annual withdrawals of 4 percent from a $300,000 retirement account — allowing you to keep some of your savings intact longer.

Working in retirement also may let you defer — and increase — benefit payments from Social Security. If you can wait until age 70 to take your benefits, the amount of your benefit will increase by 8 percent each year over what you'd receive at your full retirement age of 66 or 67.2

Do your research before you retire.

"Have some idea about how big a commitment you'd want to make if you continued working," says Cullen. "Talk with your employer. You may be able to continue in your current position or another role in your company."

In addition to income, factor in how company benefits and perks may impact your life. For example, if you receive health care through your employer, you may not be eligible to receive full Medicare benefits at the same time. If your employer's plan is sufficient for your needs, you can either delay your Medicare benefits or take only a portion of them until you're covered by another plan.

Determine where you'd use the income.

One option for your paycheck may be to contribute some of it to your retirement account.

"Some people don't see the value of contributing to their employer-sponsored retirement plan or IRA as they near retirement," Cullen says. "But it may make more sense to continue saving to save on taxes." When you're in your 60s, you already may have lost key tax deductions such as those for dependent children or mortgage interest. And once you retire, socking away the income from a part-time job might help keep your marginal tax rate lower.

Do a dry run.

"Pre-retirees should test-drive their expected retirement income for a period," says Cullen. "Try to live on that amount and see if it's enough."

» Learn more about expenses in retirement with our calculator.

Prepare for the unexpected.

Recognize that even if you anticipate working past retirement age, this may not be possible. Your current job may no longer be available, finding other work may be difficult, your health may deteriorate or your plans simply may change.

"People say they'll work longer, but often they don't or can't," says Cullen. "That's why we say 'hope for it, but don't plan on it.'"

Get professional assistance.

A financial professional can help you evaluate your options — but have this discussion before you retire so you can make adjustments to your plans, if necessary. Then sit down with your financial professional at least once a year thereafter to review your progress.

"Get your plans together before you retire," says Cullen. "People are so busy, they think they'll take care of it when they have more time."

Start planning now.

Use our interactive calculator to see if you're on track to meet your retirement goals. Find out if you're on track to meet your retirement goals with our interactive calculator.


1 Securities offered through Financial Telesis, member SIPC/FINRA.

2 Full retirement age (FRA) depends on the year of your birth. Social Security Administration http://www.ssa.gov/OACT/quickcalc/early_late.html

Jeff Cullen and 401(k) Advisors are not an affiliate of any company of the Principal Financial Group.

Insurance products and plan administrative services are provided by Principal Life Insurance Company. Securities are offered through Princor Financial Services Corporation, 1-800-547-7754, Member SIPC and/or independent broker dealers. Securities sold by a Princor® Registered Representative are offered through Princor. Princor and Principal Life are members of the Principal Financial Group® (The Principal®), Des Moines, IA 50392. Certain investment options may not be available in all states or U.S. commonwealths.

© 2013 Principal Financial Services, Inc.

t13070303u4 – 7/2013

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Securities offered through Princor Financial Services Corporation, member SIPC