It likely comes as no surprise that during the height of the COVID-19 pandemic, the U.S. labor force participation rate (LFPR) took a record-breaking 3.2 percentage point drop between February 2020 and April 2020.1 A significant portion of that can be attributed to excess retirement, where the actual retirement rates began to surpass what was predicted.1
A U.S. Census Bureau survey confirmed that the pandemic affected the timing of some adults ages 55-70.2
As pandemic conditions have gradually improved over the last couple of years, some early retirees might be considering a return to the workforce. But is that what’s really happening?
Excess retirements remain above predictions, but many retirees are back to work
It’s estimated that there are still more than 2 million excess retirees in the United States.1 While that’s a significant number, there are also plenty of retirees who’ve opted to rejoin the workforce. In fact, the LFPR is now approaching its February 2020 level (63.3%) by reaching 62.8% in November 2023.3
Many employers now encourage older workers to apply for jobs. As of December 2023, over 2,800 employers in the United States have signed an AARP pledge to demonstrate a commitment to “experienced” workers and enable a level playing field for workers ages 50 and above.4 The employer landscape looks quite promising for those who are considering a comeback.
Why retirees are returning
The reason someone chooses to come out of retirement, or “unretire,” may be personal. But, according to recent research, many have decided to return to work for financial, social or emotional benefits.5
Almost half of survey respondents (48%) felt they needed to return to work because of financial concerns, while 45% responded with social and emotional benefits as their reasons.5 This coincides with an interview AARP conducted with one individual who mentioned that he unretired because he sought opportunities to meet new people and challenge his mind while making a meaningful contribution.6
It’s possible retirees crave this kind of enrichment, which may be lost once they leave the workforce and wander into uncharted territory. An AARP study found negative emotions such as boredom, isolation, loneliness and lacking purpose among some retirees ages 40-74.7
No matter their reasons, it’s important for retirees to understand what a return to work means.
Considerations retirees must make before unretiring
The number one consideration for retirees heading back to work is how it will affect their benefits. Social Security, Medicare and any retirement accounts, such as a 401(k), could be impacted.
For instance, if someone below full retirement age returns to work and makes more than the annual earnings limit of $21,240 set by the Social Security Administration, benefits may be reduced.8 The higher income could result in higher Medicare premiums, too.9 And, while each 401(k) or pension may have its own set of rules, going back to work after withdrawing from those accounts could have ramifications or penalties.
Guiding your retiree clients
Lest we paint a picture of nothing but downsides to unretiring, there are financial benefits to returning to work, too. Unretiring could be a great way to build up additional personal savings, or contribute to a special recreation fund without pulling that money from retirement income.
And, if a client changes their mind about withdrawing Social Security benefits within 12 months of their first withdrawal and meet all other requirements, they can return any payments they received and reapply later.10
These financial incentives are all in addition to the potential emotional well-being benefits.
If you have a retired client on the fence about returning to work, there could be a happy medium in returning part-time rather than going back to the full-time grind. With many of today’s jobs allowing for remote or hybrid office-remote jobs, this “new normal” might give them an opportunity to try something new with more flexibility.
Or, whether full-time or part-time, on-site or remote, maybe now is a great time to do something they haven’t done before but always wanted to try. Retirees who choose to return to work aren’t beholden to past careers.
For your retired clients who are considering a return to work, be sure they understand everything it involves and what it could mean for all of their benefits. Discuss the pros and cons, and above all, help them see what lies ahead and encourage them to be mindful of their decision.
