For some federal employees, retiring from government service doesn't mean an end to working. It just serves as a launchpad for a new kind of work.
Let's look at some of the benefits—and the potential pitfalls—of embarking on an encore career.
By returning to work after retirement from federal service, you might be able to delay withdrawals from your Thrift Savings Plan account, allowing for continued growth or recovery from recent losses in the stock market. You may be able to fund an IRA or a new employer's 401(k) to add to your nest egg of savings for future years.
One of the benefits of the three-tiered Federal Employees Retirement System (government pension, TSP and Social Security) is that you don't have to turn on all your benefits at the same time. Delaying TSP withdrawals and adding more to your retirement savings can increase your financial security in later years.
By continuing to pay Social Security taxes, you may be able to boost your average lifetime wage amount, on which your benefit is based. For those under the Civil Service Retirement System, an extra year or more of Social Security-covered wages can reduce the impact of the Windfall Elimination Provision.
Of course, another benefit of working after retirement is to have extra cash to do fun things when you aren't working. You can save up the earnings from your second career for a new car you couldn't afford before or turn your kitchen into one that any chef would be excited to cook in.
One thing that is important to avoid in a second career is failing to realize that the job will someday come to an end, along with the extra income. Be sure that the resources you have available at that point will be adequate. Try to continue to live within your means even while working your second career, and think about using your extra income to:
- Pay down debt
- Increase savings
- Put aside emergency funds
- Plan for long-term care in case you need it
- Make home modifications to allow for you to age in place
There are special circumstances to be aware of if your second career involves returning to the federal government as a rehired annuitant. In some situations, you can get a dual compensation waiver allowing you to continue to receive your full retirement benefit along with a new federal paycheck. In other cases, your new federal salary must be offset by the amount of your retirement benefit, so that you're only working for the difference between the two.
I recall a story about a federal judge's secretary who had retired and was later asked to return to work for as a reemployed annuitant. After the offset to her salary, she was basically volunteering for the same job that she was previously paid to do. She could have earned a supplement to her retirement benefit by working as a reemployed annuitant for 18 months or more, but since she only returned until a replacement was found to fill her position, she didn't get any reemployment benefits.
A second career is not for everyone, but it can be a way to make your eventual full retirement more financially secure. And this chapter of life might turn out to be both rewarding and lucrative.
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