Consider these trade-offs before returning to work after early retirement.
By Kerry Hannon | July 20, 2010
Whether it’s a full-time or part-time gig, before you sign yourself back in for another tour, take some time to consider these five real costs of returning to the work force.
1. The Psychological Cost
Your decision ripples through your financial and personal life and packs a psychological punch, too. “There’s the psychic cost of giving up your freedom, plus dealing with the stress of the workplace,” says Betsy Werley, executive director of The Transition Network, a nonprofit organization for women over 50 who are at or near retirement. “You’ll be taking on a new environment and unfamiliar with the expectations.”
When you’re the new kid on the block, it demands some psychological adjustment and fine-tuning. All of a sudden, you are making less, probably making a few mistakes, and perhaps not being treated like the experienced professional you have come to be. It can be tough on your ego–that’s for sure. You might choose to tap a professional, such as a career coach, trusted mentor or therapist, to help smooth out this personal adjustment.
2. The Cost of Doing Business
You’ll be making money again, but also spending more, too. Consider these basic expenses:
- Commuting. Unless you’re getting a ride to the office with a spouse or neighbor, it will cost you to get there.
- Retraining. Brushing up technical skills and renewing licenses are typically out-of-pocket expenses. If you’re lucky, your employer might let you train on the job or pay for you to go back to school. Under federal law, employers can offer up to $5,250 a year in education assistance benefits for undergraduate or graduate courses tax-free each year. If you’re paying, check out community colleges for lower-cost options.
- Meals on the town. You’ll take your own lunch—-maybe–but that can quickly go by the wayside. Then, too, with a tighter rein on expenses by many employers, you may find you’re picking up the chit for working lunches and breakfasts with your staff, or outside vendors and consultants.
- Annual membership fees to professional organizations. Relationships are important. “You should continue to gather knowledge though connecting with others in your field, particularly if you have been out of the work force for any period of time,” Werley says. You might negotiate in advance with an employer about paying for these out-of-pocket expenses.
- New work attire. You’ll need a snappy new suit, but the real outlay will be for the casual work clothes now in favor–and you’ll probably be back on a first-name basis with your dry cleaner.
- New gadgets. You may need a smartphone, iPhone or BlackBerry, for instance.
- Fee for a professional photographer to snap current headshots for business use and. of course, yourLinkedIn page.
- Housekeeping services. House cleaning can run $75 to $125 every two weeks in a major city, depending on the size of your home.
3. The Tax Tab
Your family might move up to a higher tax bracket. For example, if your joint taxable income climbs from, say, $50,000 to $80,000 because of your new job, you would jump from the 15 percent tax bracket up to the 25 percent bracket. Every dollar of taxable income above $68,000 would be taxed at 25 percent.
4. The Social Security Tax
If you’ve already started drawing benefits, going back to work can affect your Social Security. Carefully review the IRS details on taxation of Social Security benefits and confer with your tax advisor, says Certified Financial Planner Deena Katz, an associate professor in the Department of Personal Financial Planning at Texas Tech University.
5. The Family Toll
Consider the impact on your spouse or others close to you now that your time is otherwise occupied. For example, your children may have to shell out for your once-gratis babysitting and chauffer services.
Tally it all up, and you’ll find working can cost you. There are so many pros and cons to weigh.
“I usually figure things are a trade-off,” Katz says.
When you retire, you’re taking more trips to visit the grandchildren or heading off on lengthy vacations. “You’re spending money in ways you won’t be able to when you go back to work,” she says. “Now those funds can go to your wardrobe and transportation back and forth to work, and so on.”
In the plus column, there’s that newly earned income and, of course, the “intangible benefits of going back to the work force that you can’t quantify…like how re-energized you feel,” she says.
SecondAct contributor Kerry Hannon is a Contributing Editor for U.S. News & World Report and the author ofWhats Next? Follow Your Passion and Find Your Dream Job (Chronicle Books).