Should You Work After Retirement?

People are starting to redefine retirement from a time of total leisure to a time for more leisure, but work still occupies part of their time. Some continue working out of financial necessity - either they didn't save enough before retirement or because stock market declines have caused them to return to work. Others stay on the job to keep busy or because they enjoy it. If you're retired and are considering going back to work, answer these questions first.

If you're retired and are considering going back to work, answer these questions first:

Will you earn enough to make working financially worthwhile? Calculate how much you'll earn after paying taxes and work-related expenses. Consider whether the additional income will increase your marginal tax bracket or disqualify you from certain tax deductions or credits. Don't forget to consider work-related expenses like lunch, clothing, and transportation costs.

Will your earnings affect your Social Security benefits? If you are full retirement age or older, you can earn any amount of income without reducing your Social Security benefits. However, individuals between the ages of 62 and full retirement age lose $1 of benefits for every $2 of earnings over $14,160 in 2010 (unchanged from 2009). Additional income could make a portion of your Social Security benefits taxable. Up to 50 percent of benefits are subject to federal income taxes if adjusted gross income plus non-taxable interest plus one-half of Social Security benefits exceed $25,000 for single taxpayers and $32,000 for married taxpayers filing jointly. Eighty-five percent of Social Security benefits is subject to federal income taxes if that income exceeds $34,000 for single taxpayers and $44,000 for married taxpayers filing jointly.

Are you approaching age 70 and 1/2? If so, going back to work may prevent you from having to take minimum distributions from your 401(k) plan or other employer plan. That way, the balance can continue to grow on a tax-deferred basis. You will, however, have to start taking distributions from traditional individual retirement accounts.

Are you thinking about starting a business? Many retirees choose to turn a hobby or work experience into a business venture. If you do, be careful not to deplete your retirement savings to fund the business. Find other sources for funding.

Do you know why you are going back to work? Be realistic about what you can expect from your new job. If it's just a part-time job to keep you busy, you probably won't have as much responsibility as you were used to at prior jobs.