From the Great Resignation to unretirement

The Covid pandemic changed the world of work — at least temporarily. U.S. unemployment reached historic lows at the beginning of 2020 but by April of that year, it had skyrocketed to levels not seen since the Great Depression. The workforce upheaval was dubbed the Great Resignation.

Some older workers were forced into early retirement as a result of health concerns, while others found they could ditch their dreaded commute and keep working from home, delaying their retirement plans. Since then, the economy has largely recovered and vaccines are widely available, yet millions of job openings go unfilled.

“Today’s employment pictures looks a lot less like the pre-pandemic years and a lot more like those during the post-World War II, when America relied on older workers to fuel growth,” demographic futurist Bradley Schurman writes in his new book, “The Super Age: Decoding Our Demographic Destiny.”

“We need older workers to stave off inflation and get the economy back on track,” Schurman writes. “They are a key ingredient to solving the massive imbalance in the demand and supply of labor, which has created the ideal environment for the Great Resignation to thrive and is a contributing factor to increasing prices.”

Some retirees, concerned about rising inflation, are returning to work to augment their retirement income and stretch their buying power. Others, worried about market volatility and portfolio losses, are considering re-entering the workforce as a way to delay tapping retirement savings in a down market.

“The market activity experienced thus far in 2022 may have an impact on employee behavior,” according to a recent report, “Real World Insight About the Great Resignation’s Impact on Work, Benefits and Retirement Trends,” from EBRI’s Retirement Security Research Center. “Asset values have come down considerably, which may have an impact on workforce exit and re-entry, as well as retirement patterns.”

How can financial advisers help their on-again, off-again retired clients navigate the shifting world of work?

One topic of conversation might be Social Security. Individuals who retired before their full retirement age are subject to reduced benefits for claiming early, as well as limits on how much they can earn from a job without jeopardizing their Social Security benefits. In 2022, individuals who are under full retirement age for the entire year forfeit $1 in benefits for every $2 earned over $19,560.

A higher limit applies to those who reach their full retirement age of 66 years and four months this year. That means those who were born in 1956 can earn up to $51,960 in the months before they reach full retirement age and would lose just $1 in benefits for every $3 earned over the limit.

The earnings cap disappears at full retirement age and any Social Security benefits lost to excess earnings will be restored in the form of larger monthly benefits.

One reader, who thought she was ready to quit her high-paying but stressful job as pharmacist, decided to retire and claim Social Security at 62. She planned to work part-time as an exercise and health coach, holding her earnings below the annual cap. But less than a year into her early retirement, she’s finding it difficult to keep her spending in line with her reduced income and is thinking about returning to part-time pharmacy work. She asked me for advice.

I said she had two options. She could withdraw her application for Social Security benefits by filing form 521, but there’s a catch. She would have to repay all the benefits she has received so far. The once-in-a-lifetime withdrawal wipes the slate clean so at a later date, when the individual is older, they teceive a larger monthly benefit based on their claiming age at that time. The reader didn’t like the repayment option.

Her other choice was to contact the Social Security Administration and tell them she planned to return to work and estimate her earnings for the rest of the year. SSA would withhold some or all of her Social Security benefits to satisfy restrictions on excess earnings.

The earning limits resets each January. It applies only to earnings from a job or self-employment, not to investment earnings, interest, pensions, annuities or capital gains.

Failure to contact SSA in a timely manner could result in a benefits overpayment, which would have to be repaid at a later date, either in a lump sum or by forfeiting future benefits until the debt has been repaid.

Because the reader has not yet reached full retirement age, she didn't have the option of suspending her benefits. That strategy allows someone who is full retirement age or older to voluntarily stop receiving their benefits. In the meantime, the benefits would increase by 8% per year up to age 70, when benefits would resume.

Claiming Social Security early has consequences. Monthly benefits are permanently reduced, and earnings limits can make it difficult to unwind a decision to unretire.

(Questions about new Social Security rules? Find the answers in Mary Beth Franklin’s 2022 ebook at MaximizingSocialSecurityBenefits.com.)