Remember the movie, Office Space from about 15 years ago? If not, the short video below might refresh your memory. Be warned. There is a scene with Jennifer Aniston that while hilarious, may be offensive to some.
Take this job and…
If you can relate at all to this movie (and I think we all can to some degree), then you have probably considered retiring early and working part-time during the early years of retirement.
On the surface, part-time work sounds like a great idea. Working part-time helps to reduce the amount of money you need to take from your retirement savings to meet your income needs, and can help fill the gap before social security or pension benefits kick in.
The problem with working part-time in retirement, however, is that for many people, it’s just wishful thinking. Just like we wish we could act out our work-related frustrations like the characters in the movie, when you really think about it, part-time work may not be the wisest choice.
Here’s the problem:
Let’s say you have an office job at a big company and it pays well – however you want to define “well”. The problem is you hate your job. Even if you don’t really hate it, you’ve had enough. Maybe you are tired of being stuck in a cube all day, or you have a terrible boss, or the stress of the job has gotten to be more than you want in your life. Maybe you are just tired of commuting to work every day. Or perhaps, just like in the movie, there’s an outside chance that your boss has criticized your lack of “flair” just once too often.
The reason doesn’t matter, the point is that you want out and suddenly working part time at Home Depot is looking pretty good.
Before you quit your day job…
• Do the math. The grass always looks greener somewhere else. But does the math really make sense? Does it really make sense to give up a job that pays well for one that pays about $12 an hour? I often ask my clients if they wouldn’t rather work just another two years at their current job rather than working part-time for another five? If you are wondering how much you make per hour now, just take your annual salary and divide by 2080 (that’s the number of hours in a work year). I will give you some basic numbers. If you are a full-time employee making a $50,000 salary you are making about $24 an hour. A $100,000 salary = $48 an hour. Etc.
• Consider the benefits. Your current job may offer significant financial benefits that you may not get at a part-time job. Benefits like health insurance or a company match on your 401(k). Both of which could be worth thousands of dollars to you over the course of a year. Most part-time jobs offer little to nothing in the way of traditional benefits. Before you make your decision be sure you can afford to forgo the matching retirement plan contributions and that you can get affordable health insurance. Health insurance benefits alone could be worth more than $1,000 a month to you and your spouse.
• Plan for Social Security. Your social security benefits are based on your income. More specifically, they are based on an average of your monthly earnings during the 35 years in which you earned the most. If your income drops off in the final years of your work life, the years when your income is normally at its peak, it could have a big impact on your ultimate social security benefit in the future. To get an idea of what the impact might be check out the Retirement Estimator at the social security website.
• Your new job may require a new schedule. Most clients I work for have traditional 9-5, Monday through Friday, types of jobs. Many part-time jobs are anything but traditional 9-5. While it may be tempting to take a less stressful, part-time job it’s also possible that that job may require you to work some unpleasant hours. In a different lifetime, when I was in the hotel and restaurant business, I remember working many Christmases, every New Year’s, and most major holiday weekends. For you, maybe that’s not a problem. But I suspect that many people who leave traditional 9-5 jobs are less than thrilled to be asked to work on Christmas Eve or to pick up a couple of shifts during the middle of a long July 4th weekend.
• Be honest. Is it really going to happen? For every ten clients who tell me they plan to work part-time in retirement only about one or two actually do. For many people, part-time work is one of those ideas that seem to make sense at the time, but when it comes to actually committing to a part-time job, it rarely happens. If your financial plan is based on part-time work to supplement your retirement income, be realistic about whether or not you will really do it.
Part-time work in retirement can be a great way to supplement your retirement income. In a future post, I will share with you some great success stories, but before you put in your notice at work, consider all your options. You may be better off to stick to your current job for just another year or two.
If you are wondering if part-time work might fit into your overall retirement plan – or not – Just Ask Mike.
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