Introduction
Good retirement financial planning will include a diverse source of income streams in retirement. This diversity aims to mitigate sequence of return risk in early retirement, other economic downturns during retirement, inflation, expensive emergencies and more.
One source of income many retirees utilize is annuities. There are many different types of annuities and many different types of annuity payouts. But in general, an annuity is a lump sum payment given to an insurance company with the promise of a steady stream of income, either immediately or sometime in the future.
Some retirees may be thinking about part-time work as another income stream in retirement. Part-time work has many benefits for a retiree such as keeping a person physically and mentally active, providing a social outlet and more. This article aims to discuss the relationship between annuities and part-time work in retirement and how part-time work may be used as a strategy to supplement annuity payments and enhance financial security.
Enhancing Financial Security with Part-Time Work
In general, the amount of an annuity payment will not change over time. The benefit of a consistent payment is that it is steady, reliable and guaranteed. However, the downside is that over time, due to inflation, the buying power of that payment will decrease. A dollar today will not buy as much as a dollar 10, 20, 30 years from now and beyond. By working part-time, the reduction in buying power due to inflation can be mitigated by supplementing the annuity payment, thus mitigating the effect of inflation risk.
Working part-time also has the financial benefit of providing flexibility in times of unexpected expenses. With healthcare costs on the rise and emergency stay for any period could take a chunk out of anyone’s nest egg. Part-time work may provide the flexibility needed to be able to weather the storm without taking out extra withdrawals from other retirement sources, such as annuities.
Managing Annuity Payouts More Effectively
A common type of annuity is an immediate annuity. This type of annuity provides an immediate and guaranteed lifetime payout for the annuitant. But some companies will offer annuities that have higher payouts if you wait to pull withdrawals later in retirement. By working part-time, a retiree may be able to maximize longer-term benefits of an annuity. Be sure to read the fine print, specific terms and conditions may apply.
Maintaining Lifestyle and Financial Independence
Like enhancing financial security, part-time work can further enhance financial independence. A part-time position can supplement income to better be able to afford travel, hobbies or other lifestyle goals. Maybe you always wanted to be able to bless someone in need or “pass it forward,” part-time work can provide that income while protecting your nest egg. This may avoid the need to drastically cut down your budget or downsize to achieve these types of goals.
Health and Social Benefits of Part-Time Work
It’s pretty well known that maintaining an active lifestyle may help people live longer and healthier lives. Maintaining a social network post career may be difficult for many people. Not everyone has the support system of a spouse or children or other friends and family. A good example could be a retired nurse taking a part-time role in a community clinic for fulfillment and engagement.
Finding the Right Part-Time Job
Finding the right part-time job is important. The reason you’re retired is to take a break and enjoy the fruits of your labor! So, a part-time job that adds a great deal stress or anxiety to life is completely counterproductive. Finding that right part-time job will also include balancing the income with the responsibility all while in the context of enjoying this season of life. Here are few possible things to look for in a part-time job that will allow for flexibility in this season of life:
Remote Work: Working from home (or the beach house) has never been easier. With technology available to collaborate with co-workers from anywhere, the most flexible working arrangement should be wherever you find yourself in retirement.
Seasonal Work: Maybe you only really need that extra gift giving cash to stretch your budget, if so, holiday seasonal work may be the right fit.
Consulting Opportunities: Leveraging past career expertise to work as a part-time consultant could make for an easier transition into part-time work. This would also likely mean the possibility of charging a higher rate (for your experience), thus, requiring fewer hours to reach your goals (i.e., more flexibility).
Conclusion
The benefits of working part-time are obvious. But you must remember to do your research on what type of opportunity you’re looking for and to ensure that whatever work you do align with your skills, interests and financial goals. But remember, it’s important to consult with your financial advisor to ensure that you are fully aware of any tax implications part-time work could incur. There are limits on income when it comes to how heavily Social Security benefits are taxed.
Part-time work can enhance annuity income while also providing both financial and personal benefits.