Should you work part-time in retirement?

Even a low-paying gig can make a dramatic difference

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part time jobs in retirementRetirement does not have to be an all-or-nothing proposition when it comes to drawing income versus earning more of it. This column advocates a couple of things: one, drawing gradually on more and more multiple streams of income; and two, continuing at least on a part-time basis the stream of income known as earned income.

Indeed, an analysis commissioned by Larry Berman, host of BNN’s Berman Call and Chief Investment Officer of ETF Capital Management, showed the powerful impact of earning just $1,000 in part-time income each month between the age of 65 and 75; or in the case of couples $2,000 a month between them.

The analysis prepared by ETF Capital’s Fabien Ouellette vividly shows that compared to earning nothing extra at all after the traditional retirement age of 65, earning such modest amounts of extra income (whether as a part-time employee or on a self-employed basis) magically accomplishes two things.

In the case of a retiree with lifestyle expenses of $60,000 who undertakes a full-stop retirement at 65, earning no extra income, there is a sharp fall in a $500,000 (combined registered and non-registered) portfolio starting at age 65. By the time they reach their early 80s, the nest egg is depleted to zero.  (This is shown in the orange line in the graph below.)

part time jobs for retirees

The outcome is much different for a couple earning just $2,000 a month between them part-time after 65 and going until 75 (shown as the grey line in the chart). That’s about $250 per week per spouse. The dramatic effect is that even that modest amount of income delays the portfolio’s drop below zero beyond their early 90s. During the ten-year period of working part-time, not only does the nest egg not decline the first ten years, but it actually rises! The effect is that by the time you reach 75 and finally stop working even part-time, the portfolio declines from a higher level and much more gradually.

Of course, the more you work, the better: for a couple earning $3,000 a month between them (the yellow line), the portfolio still has more than $200,000 by their 90s!  Similarly, the analysis also shows what happens if you work extra hard, which many might argue wouldn’t even qualify as retirement or even semi-retirement. At $4,000 a month (shown in blue) the portfolio is barely depleted at all by the time they reach 100!

Finally, in the most extreme case of earning $6,000 a month – which is virtually a full-time job for many – the portfolio almost doubles to $870,000 by age 75 and virtually never declines below zero, no matter how extended your longevity proves to be. (That’s shown in the green line on the chart).

Remember, even in the latter extreme case of working almost full-time to 75, you cease to work at all after that age—but the benefits of those ten years of part-time work extend right to the end of even a long lifetime. ETF Capital cautions that its calculations relied on certain assumptions on market returns, tax rates and what you do with the surplus money, and that relying on extra work at this age is NOT a substitute for a good financial plan.

We could of course talk about the social, health and other benefits of working part-time in retirement (in addition to the financial benefits discussed here) but that would require an entire book to describe. In fact, I’ve just co-authored a book on just that subject, an excerpt of which ran in the recent Summer issue of MoneySense, and which is mentioned below.

Jonathan Chevreau is MoneySense’s Retired Money columnist and the founder of the Financial Independence Hub. He can be reached at jonathan@findependencehub.comHe and Michael Drak have just published the book Victory Lap Retirement.

 

8 comments on “Should you work part-time in retirement?

  1. Disappointed in this article. Never shares the assumptions and never explains why the income streams play out the way they appear to. The only thing a client would take away from this is an unfounded fear of the future. c’mon Jonathan, you can do better than this.

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  2. I am SO tired of these articles! All of them are based on the assumption that one is able to continue working and can find employment after age 65. I left the workforce at 64 for health reasons. I was a “knowledge” worker but arthritis in my hands & wrists keeps me from using a keyboard for long stretches and I can’t predict the flare-ups. I looked for satisfying, decent-paying part-time work for 18 months without success. I’d love to work, but today I need guidance on how to extend my savings, not guilt or fear about a destitute old age!

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  3. Who at the age of 65, after retirement, can find work that pays $1,000/month? IF you are able to find a job at $20/ hr.. (for example), you would need to work a minimum of 20 hrs. per week, ‘before’ taxes….OR, less pay = more hrs. worked….good luck finding that job!

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  4. I retired in 2008 from paid employment. Fortunately as a psychotherapist, I was able to have a private practice from home, part time, until 2015. This has made a huge difference in my finances in that I did not have to start withdrawing very much from my RRSP. While I am now well past reitrement age, I have recently started an online blog which I am hoping to monetize. To be able to do this (withdraw very little) I have also cut expenses where I could and I definitely shop wisely to make sure my savings outlive me.

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  5. I am 65 and have $400,000 in RRSP’s compounding interest at $35,000 a year until 71 years old when all my strip bonds mature. My RRSP will be $610,000 by RRIF time. My TFSA’s $51,000 in TFSA’s are compounding interest at $3,300 a year until my early 90’s maturing strip bonds adding another $100,000 without counting other annual TFSA contributions.

    I have GIC’s of $15,000 for the next 6 years maturing annually giving me around $2,500 a year interest. Basically I have no income taxes to pay a year. I work part-time earning, 24 hours a week $18,000 year and since I am 65 years old my first $17,000 a year in tax free plus I make around $3,000 a year annual RRSP contributions I get back all my income taxes deducted from my paycheck around $1,600 a year.

    This will add another $16,000 to mt RRSP by I am 70 years old. I left my C.P.P, OAS not taking it now but will be taking it at age 70 so I will get at least 30% more or $450 a month more in increased pension at age 70, around $2,000 a month by then.

    My $200,000 life insurance policy is fully paid and will cover most income taxes on my RRSP/RRIF when my 2 sons get it after my death.

    I have no debts of any type, no mortgage, no credit card, no car loan debt, 3 year old car fully paid for, no line of credit, no debts at all.

    I am a single mother working for 34 years full time and always took care of our family finances because that is what a good, loving parent and prudent parent does for their family.

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  6. We are currently 56 and 57 retired and have been saving and investing since our early 20’s. We have now $2.5 million, $500,000 in RRSP’s, $105,000 in TFSA’s, $1.895 million in non-registered accounts invested in longer term Canada, provincial bonds, strips.

    Our total yearly interest is $175,000 a year from all these sources. This will payout until 2040. Our RRSP’s will have be withdrawn so excluding that $140,000 yearly interest is 100% sure.
    Our RRSP’s will be used to fund all our TFSA’s and 4 adult kids so $33,000 will cover all that. We will likely be starting a home based business to make some extra money but more for use of being active and we want to give some work to some young Canadians.
    We will try to pay at least $16 an hour for minimum 30 hours a week plus an annual $2,000 RRSP contribution as a benefit.

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  7. My wife and I have a very simple retirement strategy we have put in place since the last 20 years. We just buy a bi-weekly GIC with 5 year terms and compound interest only option each from financial institutions that have $1,000+ minimum investments and top interest rates.
    The interest rates now are low but what is important with us is the liquidity and accessibility to our money now because we are retiring in 2017.
    Basically, we have GIC’s each of $1,000 or more that mature every 2 weeks as we continue doing this. This is only with our non-registered money only.
    For example, in 1 year, we would have 26, $1,000 GIC for myself and for my spouse which is $52,000 a year but you have to add the compound interest so a 2.5% compound interest rate over 5 years is $131.41 per $1,000 GIC*52 GIC’s, 26 each, meaning $6,833.32 compound interest+$52,000 principal=$58,833.32 per year money maturing.

    Our TFSA’s and RRSP’s are all compound interest and continue to grow which is a total of about $350,000 today.

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  8. Most of my family and friends bought big houses back in the 80’s and now have $700,000, $800,000 homes paid off in Toronto. However, they have a real problem now, their property taxes, home insurance, electricity, water, heating bills, H.S.T., home repairs and maintenance on these bills, expenses etc. are getting to a point of eating up 35% to 40% of their coming net after income taxes retirement income.

    They are looking at $40,000 to $42,000 net a year in C.P.P, OAS and RRSP withdrawals or RRIF withdrawals, some workplace pensions too after income taxes paid. They do not have much in investments, savings $75,000 to $100,000 at most because of all their money going to mostly to support their big house, 2 cars, workplace pension contributions, mortgage paid off but took 20 to 25 years leaving not much for savings, investments.

    We have a modestly paid off $450,000 house but saved, invested wisely with $500,000 in RRSP’s, $110,000 in TFSA’s, $250,000 in 5 to 7 year GIC’s. term deposits, cashable GIC’s and $80,000 in REIT’s.

    We have no workplace pensions but the way our investments are structured we are earing around $32,000 to $35,000 a year and 85% of all our money is in investments that can’t drop 20%, 30%+ due to market crashes like 2008 and other years like 2001, 2003 etc.

    Our total net income with C.P.P, OAS will be around $45,000 to $48,000 a year. We made sure that our housing costs, expenses etc. and all daily living expenses, total of them were not not than 40% to 42% of our net income in retirement.

    Remember, this of net income in retirement not gross income. This is a big difference and major mistake most seniors, retirees make when planning or looking at the true numbers that will impact their finances.

    Our monthly savings, investments financial cushion is currently between $2,000 to $2,400 a month on average.

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