Contemplating Retirement: Is a Part-Time Retirement the Appropriate Choice for You? (Financial Advisor Perspective)
As more retirees choose to work past the traditional retirement age, a variety of employment options for partial retirement are becoming increasingly popular. These options can provide financial stability, a sense of purpose, and a gradual transition into retirement.
One such option is entering partial retirement, where an individual reduces working hours between 25% and 75%, while receiving part of the pension. Age and eligibility conditions apply, and an agreement with the employer, plus an application to the pension insurance, is required. Another popular choice is "Altersteilzeit" (phased retirement), where employees work full-time for some years while deferring pay to finance an earlier exit from work.
Working from home offers less demanding job opportunities and passion projects. However, not all employers offer part-time options, so research is necessary beforehand. Part-time roles in non-profits or charities, and starting a small business are other employment options available.
When considering spending retirement funds, it's essential to consider what can be reasonably spent and to consult a financial professional for guidance. Withdrawing money from retirement accounts like a 401(k) or IRA will result in tax payments. Extra income earned during retirement should be planned to avoid becoming a tax burden.
Earning income during retirement can impact Social Security benefits and taxes. In 2025, the limit for earning and not having Social Security benefits reduced while under full retirement age is $23,400. After reaching full retirement age, $1 in benefits is deducted for every $3 earned, with the 2025 limit being $62,160.
For those working for a company with fewer than 20 employees, applying for Medicare becomes necessary. In most small businesses, after age 65, health expenses are covered by Medicare first and any other employer-based plan second. If eligible for Medicare but still employed, you can hold off on Medicare Part B and D benefits and use your company's health care plan if the company has 20 or more employees.
Working past the traditional retirement age can also provide the opportunity to delay claiming Social Security benefits. The longer you can delay claiming, the larger your monthly payments will be. However, withdrawing funds before age 59 1/2 may incur a 10% early withdrawal penalty.
Navigating retirement options can be complex, and a financial adviser can help create a personalized plan. Careful tracking of income is necessary to avoid being caught off guard during tax-filing season. Starting a small business during retirement might require more hours than anticipated, so it's essential to consider all factors before making a decision.
In conclusion, partial retirement offers a range of employment options for retirees, each with its own financial implications. By understanding these implications and planning carefully, retirees can enjoy a comfortable and fulfilling post-retirement life.
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