By Dallen Haws, for Haws Financial Planning
I’ve seen many people retire, travel for a year, get bored, and then go back to work. Whether it’s out of boredom, financial need, or for any other reason, many federal employees find themselves in a position where they want to go back to work after they’ve already retired. The question is, how will going back to work affect your benefits and your retirement?
To those who are employers that go back to work in the private sector, they will see basically no change in their benefits. The only situation where benefits might be affected is if they are not yet their full retirement age for Social Security and have income over certain limits. In this case, their social security monthly payout may be decreased. Once someone reaches their full retirement age then their Social Security will not be decreased for any reason. Social Security can always be taxable but will not be reduced after your full retirement age.
For those who want to go back to work for the federal government, the rules get much more complex. For most of these individuals, they will continue to receive their full pension and benefits but their pay may be reduced by the amount of their pension. In other cases, their pension will be stopped completely and they will be covered as just a regular employee. In most cases your pay will be simply decreased by your pension amount, but I would definitely check with your hiring HR department to see what applies to your position.
Some agencies hire retired federal workers under personal service contracts. In this situation retirement benefits would not be affected. These contracts often explicitly state what tasks are to be completed, at what compensation rate, and within what amount of time.
Another thing to ask your hiring HR department would be how they handle your federal employee health benefits. During your career, your premium comes right out of your paycheck on a pre-tax basis. In retirement however, you have to pay taxes on your income and then pay your premiums with what is left. Some agencies allow rehired retired federal employees to come back under the agency plan. This would allow them to enjoy the pre-tax benefits. Consult with your agency to see if this would apply to you.
Although it is impossible to know exactly which rules will apply to you, hopefully this article gives you an idea of what things might look like and if it makes sense for you to jump back into the workforce.
Agencies to Begin Waiving Salary Offsets as Part of COVID-19 Response (March 21)
OPM has invited agencies to submit requests for waivers of dual compensation reduction – salary offsets – based on a hiring need resulting from the COVID-19 pandemic health crisis.
Dallen Haws is a Financial Advisor who is dedicated to helping Federal Employees live their best lives. He loves talking about the security and freedom that a strong financial plan can bring to our lives. He has seen how good information can change everything. You can learn more about him at https://planyourfederalbenefits.com/.