What If You Want to Work Part-Time in Retirement?

Picture this: You're 62, and you've spent the last three decades climbing the corporate ladder. The full retirement party sounds nice in theory, but honestly? The idea of going from 50-hour weeks to zero feels jarring. What if you could ease into retirement instead, working 15-20 hours a week doing something you actually enjoy?

You're not alone in this thinking. According to a recent study, nearly 75% of workers over 50 say they want to keep working in some capacity during retirement. Maybe it's consulting in your field, turning a hobby into side income, or finally working that dream job at the garden center without worrying about the paycheck.

But here's what most people don't realize: even a modest part-time income can dramatically change your retirement math. And we're not just talking about having extra spending money. We're talking about potentially delaying when you tap your retirement accounts, giving your investments more time to grow, and maybe even pushing back your Social Security claiming date for a bigger benefit down the road.

Let's get specific about the numbers, because this is where things get interesting. Say you retire at 62 with $500,000 in retirement savings. Using the common 4% withdrawal rule, you'd pull out about $20,000 annually from your nest egg.

Now add a part-time job earning $20,000 a year. Suddenly, you might not need to touch your retirement accounts at all for those first few years. Or you could withdraw just $10,000 instead. That difference is huge. Your $500,000 continues growing (assuming a 6% average return) instead of shrinking right when sequence of returns risk matters most.

Here's the math that makes financial planners excited: If you work part-time from 62 to 67, earning $20,000 annually and reducing your retirement account withdrawals by that same amount, your nest egg could be worth $100,000 more by age 67 compared to full retirement at 62. That's not even accounting for any employer 401(k) match you might still be getting.

The compounding effect works in your favor in multiple ways:

• Your savings keep growing instead of being drawn down
• You delay Social Security, increasing your monthly benefit by about 8% per year until age 70
• You maintain employer-sponsored health insurance longer, avoiding costly marketplace premiums
• You continue contributing to retirement accounts if your employer offers a match

Here's where many people get tripped up. If you claim Social Security before your full retirement age (currently 66-67, depending on your birth year) and continue working, the Social Security Administration will reduce your benefits if you earn above certain thresholds.

For 2024, if you're under your FRA for the entire year, Social Security will deduct $1 from your benefit for every $2 you earn above $22,320. So if you're collecting Social Security at 62 and earning $30,000 from your part-time job, you'd be $7,680 over the limit. That means Social Security would withhold $3,840 from your benefits that year.

In the year you reach your FRA, the rules get more generous. The limit jumps to $59,520 (for 2024), and they only deduct $1 for every $3 you earn above that limit. Plus, this only applies to earnings before the month you reach FRA. Once you hit your full retirement age, there's no earnings limit at all. Work as much as you want without any Social Security penalty.

Important reality check: The money Social Security withholds isn't lost forever. Once you reach FRA, they'll recalculate your benefit to account for the months they withheld payments. Your monthly check will increase slightly to make up for it over time. Still, many people find it makes more sense to delay claiming Social Security altogether if they're going to work part-time in their early 60s.

Let's talk taxes, because yes, your part-time income will be taxed. But the impact might be less painful than you think, especially if you plan strategically.

Your part-time wages are taxed as ordinary income, just like when you worked full-time. If you're married filing jointly and your combined income (including your spouse's income, half of your Social Security benefits, and other sources) is under $89,250 in 2024, you're in the 12% federal tax bracket. That $20,000 part-time job might only cost you $2,400 in federal taxes, less if you still have deductions.

Here's a smart move many semi-retirees miss: If your employer offers a 401(k), you can still contribute and reduce your taxable income. The 2024 contribution limit is $23,000, or $30,500 if you're 50 or older. Even contributing $5,000 annually saves you money on taxes now while boosting your retirement savings.

Tax planning strategies to consider:

• If you're charitably inclined, use Qualified Charitable Distributions from your IRA once you're 70.5 to offset other income
• Time your retirement account withdrawals to stay in lower tax brackets
• Consider Roth conversions in years when your part-time income is lower
• Track all work-related expenses that might be deductible if you're self-employed or consulting

We've focused a lot on numbers, but let's be real: the best financial plan in the world doesn't matter if you're miserable. Semi-retirement offers something traditional retirement often lacks in those early years: structure, purpose, and social connection.

Working 15-20 hours a week gives you a reason to get up, people to interact with, and mental stimulation that binge-watching Netflix just can't match (trust me, we've all tried). Many people find the transition from full-time work to complete retirement jarring. You go from being needed and relevant to suddenly having 60+ hours of free time to fill. Semi-retirement lets you ease into this new life phase.

Plus, there's the health insurance factor. If you retire before 65, you're not eligible for Medicare yet. Employer-sponsored health insurance, even for part-time workers at some companies, can save you thousands compared to marketplace plans. That's a financial benefit that doesn't show up in simple retirement calculators but makes a real difference in your budget.

The sweet spot for many people? Working at something you enjoy, not because you have to, but because you want to. Maybe it's consulting on your own terms, teaching a college course in your area of expertise, or working retail at a business you love. The paycheck helps, but it's not the only reason you're there.

So you're sold on the idea of working part-time in retirement. What's next? Start by running the numbers for your specific situation. How much do you need from your retirement savings if you're earning $15,000 annually? What about $25,000? How does that change when you factor in delayed Social Security claiming?

These projections matter because they help you make informed decisions. Maybe you discover that working just 10 hours a week for five years means you can retire completely at 67 instead of working full-time until 70. Or perhaps you find that part-time income lets you take that dream trip to Italy at 64 without guilt about tapping your nest egg.

Questions to answer in your planning:

• What's your full retirement age for Social Security purposes?
• If you claim Social Security early, will your part-time earnings trigger the earnings limit?
• Does your potential part-time employer offer benefits like health insurance or 401(k) matching?
• How much do you truly need to cover your expenses, and how much can part-time work provide?
• What's your backup plan if health issues prevent you from working as long as you'd hoped?

Remember, flexibility is your friend here. You can always adjust your plan as circumstances change. Started a part-time gig and hate it? You can stop. Love it and want to work more hours? Go for it. The beauty of semi-retirement is that you're in control.

Important Disclaimer: The information provided in this article is for educational purposes only and should not be considered financial advice. fidser. is not a certified financial planning firm, and we always recommend consulting with a qualified financial advisor or planner before making any significant financial decisions regarding retirement, Social Security claiming strategies, or investment choices.