You've retired, but now you have a chance to go back to work.
Perhaps an intriguing opportunity has come your way, or you need to
bolster your portfolio. Whatever the case, returning to the
workplace can have an impact on the retirement income benefits
you're currently receiving. Here's what you need to know before you
Social Security. If you have already claimed Social Security
benefits but are younger than full retirement age (66 for those
born between 1943 and 1954), your benefits are subject to the
"earnings test." For every $2 you earn above the annual
limit--$15,120 for 2013--the government will withhold a dollar of
benefits. The limit is higher in the year you turn full retirement
age: In 2013, you will forfeit $1 of every $3 you earn above
$40,080, up to the month of your birthday. After that, your income
has no impact on benefits. "You can earn as much as you want," says
Chris Chaney, vice-president at Fort Pitt Capital Group, in
The benefits you forfeit are not lost forever. At full
retirement age, the government will increase your benefit to take
into account the benefits that were withheld. For example, if you
took benefits at 62 and forfeited 12 months' worth of benefits, at
full retirement age the government will recalculate your benefit as
if you claimed three years early instead of four years.
Bob Santucci of Carrollton, Va., waded through the complexities
of the earnings test when his wife was offered a supervisory job in
2008 about six months after starting her benefit at 62 1/2. Her
benefit took a hit for several years. But this year, the Social
Security Administration notified his wife by letter that her
benefit would be adjusted upward--by about $35 a month. "At that
time, you are giving it up, but you do get it back at 66 for the
rest of your life," says Santucci, 68.
Be sure to let the Social Security Administration know that
you've returned to work. Otherwise, if your tax return shows
earnings that should have triggered reduced benefits, you'll either
have to pay back the excess in a lump sum or take a cut in future
Working can increase your benefit if your new salary places you
in one of your 35 highest earning years, which is what a benefit is
based on. The government will annually refigure a benefit, even if
you already started benefits. The salary also will boost the
benefit of anyone who had no income during one or more of those 35
You have two options if you want to stop benefits while you're
working. Within 12 months of first claiming, you can file to
"withdraw your application" for benefits. You will need to repay
benefits you already received, but you can restart your benefits
later--as if you had never applied. You'll also have to repay any
spousal benefits. If you've passed the 12-month window, you can
suspend your benefit, as long as you've reached full retirement
age. You can then delay restarting your benefit to as late as 70,
earning delayed retirement credits of 8% a year.
Retirement accounts. You can boost your tax-advantaged
retirement nest egg if you return to work. Because you have earned
income, you can contribute up to $6,500 in 2013 to a traditional
IRA if you are 50 or older. You also can contribute the same amount
to an IRA for a nonworking spouse as long as your earnings cover
Once you hit 70 1/2, however, you can no longer contribute to a
traditional IRA and you must start taking required minimum
distributions, even if you are working. If you fall under the
income ceiling (up to $188,000 for joint filers and $127,000 for
singles), you can contribute to a Roth IRA. There is no cap on a
person's age for contributing to a Roth and no RMDs.
If your employer has a 401(k) plan, you can contribute up to
$23,000 a year if you are 50 and older. While you're working, you
won't have to take an RMD from that 401(k), even if you're 70 1/2
or older, as long as you don't own 5% or more of the company. You
will have to take RMDs from 401(k)s held by former employers,
though. If your current 401(k) plan allows it, you could roll money
from other 401(k)s or IRAs into your current 401(k) to avoid RMDs,
says Travis Sollinger, director of financial planning at Fort Pitt
Capital. However, you would be restricted to the investment choices
that your current 401(k) plan offers.
Those who return to work through self-employment can turbocharge
their nest egg. The self-employed can open a SEP IRA or a solo
401(k), either of which lets you stash up to $51,000 in 2013. Those
50 or older can sock away an additional $5,500 in the solo 401(k).
At 70 1/2 or beyond, you can still contribute to a SEP IRA but you
must also take RMDs from it.
Annuity and pension payments. Monthly payouts from an immediate
or a variable annuity will continue when you return to work.
However, if you're just taking periodic withdrawals from a variable
annuity's investment portfolio, you do have the flexibility to stop
taking those distributions, says Joseph Heider, managing principal
of the Ohio Region in Rehmann Financial's Westlake office.
Pension payments from former employers will continue if you're
working for a new company. But payments could stop if you're
returning to your former employer. "Definitely make an inquiry
before going back to work," says Rebecca Davis, legal director for
the Pension Rights Center.
Generally, if you return to an employer, the company will
suspend your pension. If the plan is still in operation, you may
receive actuarial increases. When you re-retire, you could end up
with a higher monthly payment. If the pension plan is frozen, you
won't earn additional service credits, but you can restart your
existing pension once you leave the company for good, Davis says.
Pension plan rules snared a client of Davis's who worked for nearly
30 years for IBM in the U.S. The client, who asked not to be
identified, says that after leaving his job with IBM, he tried to
collect his pension. But because he had gone to work for a
subsidiary in Latin America, he was considered to still be working
for IBM, and, he says, the plan rules would not allow the company
to "double pay" him.
Although he couldn't take his pension, "it worked out well for
me--I was making a bit more than in the U.S.," says the client, 69.
After about two years in Latin America, he retired and started his