Episode 112: The Hidden Financial Pitfalls of Unretirement

Many people retire expecting financial stability—only to realize later they need or want to return to work. This growing trend, known as “unretirement,” can offer purpose and income… but it also comes with hidden financial consequences.

In this episode of Informed Aging, Robin Rountree sits down with John Davis, CFP® and IRS Enrolled Agent, to break down what happens when you go back to work after claiming Social Security. From benefit reductions to unexpected taxes and planning opportunities, this conversation helps listeners make informed decisions before reentering the workforce.

John Davis is a Certified Financial Planner (CFP®) and IRS Enrolled Agent (EA) specializing in retirement planning and tax strategy. He works with clients nationwide to help them make informed decisions about their financial future.

Connect with John Davis
Website: jkdfinancial.com 
Email: john@jkdfinancial.com  
Phone: (417) 267-1042

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Transcript

[00:00:00] Robin Rountree: 

[00:00:04] Welcome to Informed Aging, a podcast about health, help, and hard decisions for older adults. I'm Robyn Rountree. I'm a former family caregiver. I've worked in the home care industry, and now I work for the Alzheimer's and Dementia Resource Center. the thoughts and opinions expressed on this podcast belong to me and my guests, not our wonderful employers and sponsors.

[00:00:27] Before making any significant changes in your life or your person's life, please consult your own experts. Today, we're not talking about retirement. We're talking about unretirement. Retiring and then deciding to go back to work and some financial implications you may not have thought of. We'll be talking about that right after this. 

[00:01:54] We are back, and today we are talking to John Davis. And I always like to have people explain the letters behind their name, because you did some hard work to get those letters behind your name. First we have CFP.

[00:02:11] John Davis: Yes. Certified financial planner. And really all that means is that I am adept at talking about a wide range of topics as it relates to personal finance, from investments to retirement, estate planning, taxes, et cetera.

[00:02:26] Robin Rountree: Oh, that's, that's quite a range. Now, I've heard the term fiduciary thrown around. Does that apply to you?

[00:02:33] John Davis: It does. So the CFP has its own set of guidelines as far as a fiduciary and, which means acting in a client's best interest. I also own my own financial planning firm and a registered investment advisor, which also, adheres to a different fiduciary rule as well.

[00:02:50] Robin Rountree: But you are out to look out for your clients, not the money coming into your wallet.

[00:02:56] John Davis: the way I have to structure my business is that I, I get paid based on the advice that I give rather than whatever product I am selling.

[00:03:06] Robin Rountree: Okay. That is good to know. And you're the first person I've talked to with the EA behind their name. What is that?

[00:03:14] John Davis: So EA is for IRS enrolled agent. And it's one of a few designations that allow for folks to represent others in front of the IRS should there be some audit or some reason that would require further clarification from the IRS. So the other ones are gonna be a CPA and then also attorneys, JDs.

[00:03:36] And so really what the e-enrolled agent license is, it's just an extra layer of expertise in taxes. And so there's a test and then ongoing continuing education, and it's one of the few designations that are really truly tax-focused as opposed to being accounting in general. So I, I love taxes.

[00:03:54] I've I've always enjoyed it as part of the financial planning that I do, and so that was just a way to advance my knowledge and and just be able to dive deeper into something that a lot of people don't wanna talk about, to be honest.

[00:04:05] Robin Rountree: Amen to that. Now, it's, it's not the topic, but I have to know, because people fear an IRS audit. Have you, have you sat in that room? How-- Is it awful? Is it business-like? What is that like?

[00:04:19] John Davis: It's, you know, it's a lot of times it's not as bad as people think. In the few circumstances that I've seen with folks, it's, hey, just something that they just happened to miss -- or it could even be another circumstance was just the IRS happened to miss something because the, it...

[00:04:32] mistakes happen. We're humans on either end of things. But generally speaking, as, as long as you're not doing something malicious or with malicious intent, they're, they're willing to work with you to figure out a, a solution. 'Cause at, at the end of the day, they don't wanna spend a lot of time digging into you 'cause that costs them money and time, and y-you don't wanna have that either.

[00:04:52] So usually, coming together and finding a solution, they're they're more willing to work with folks than others than you might imagine.

[00:04:59] Robin Rountree: Okay, that makes me feel better. Not that I think I'm gonna be audited, but it's just one of those scary thoughts. So what we do wanna talk about today is unretirement. And AARP recently had a survey of adults 50 and over, this was this year, and it found that in the past six months, 7% of retirees have unretired and reentered the workforce, and 48% said their primary reason to make money. So they retired, they got out of the rat race, they thought they were good, and ha, we-- eggs, you know, at the grocery store, everything's more expensive. So they decided to go back to work. But it's not just go back to work if you're collecting Social Security, right?

[00:05:51] John Davis: Yeah, that's exactly right. So if you are collecting Social Security, and depending on your age, so the big catalyst for Social Security is, is full retirement age. For most folks, that's gonna be age sixty-seven. If you're born nineteen sixty or later, that's, that's your full retirement age. If you start taking benefits before that age, so you can take as early as age sixty-two, the IRS says, says that's fine.

[00:06:14] You'll have a reduced benefit, but you also have an earnings cap, meaning, hey, you, you can work, but if you earn more than a certain dollar figure, and they'll adjust it each year, this year it's a little over twenty-four thousand dollars, you are penalized for whatever dollar figure you go above and beyond that amount.

[00:06:30] So it's the tune of a dollar for every two dollars you earn above that threshold. So that's just something to keep in mind if you do decide to go back to work and you anticipate making pretty substantial money. You make, you know, three thousand, four thousand dollars a month, you might wanna consider- pausing your Social Security benefits or, or just be aware that they will be reduced.

[00:06:52] Robin Rountree: Okay. That-- Let's go through that again, because it still blows my mind that full retirement age is sixty-seven. I had that locked in my brain that it was sixty-five, even though I've been told several times. For some reason, that's just what I thought it was. But it's, you can start at sixty-two, and it's not the full amount you would get at sixty-seven, but some people are like, "I don't want to work anymore, let's just start now." So you're telling me that if I retire before the full age and I decide to go back to work, I'm limited in my income. Well, I can make as much as I want, but then that Social Security check keeps getting smaller?

[00:07:33] John Davis: That's, that's exactly right. And so part of that catalyst too is that when you go back to work, you are going to be paying into Social Security as well. So it, it complicates the factor of the, the calculation. And once you hit age sixty-seven, that's no longer an issue. You don't have that limitation anymore.

[00:07:49] Now, the other end of that, and not to jump the gun, but you can subject a portion of your Social Security to tax if you have to, if you're making too much money. So you can... You know, Social Security in itself is kind of a tax, but you can find a way to get taxed on that tax too, if you're not careful.

[00:08:05] Robin Rountree: I make twenty-five thousand dollars and my Social Security check, let's just say I'm getting two hundred dollars a month. So each dollar that I go over the limit, which was twenty-four thousand...

[00:08:22] John Davis: It's twenty-four thousand four eighty. So if you say twenty-five, we're about five hundred dollars over.

[00:08:26] Robin Rountree: Okay, so I'm making five hundred dollars more I should, then my Social Security check goes down by a thousand or by two fifty?

[00:08:34] John Davis: By two fifty, and that'll be... It-- Typically, the way they do it is, a lot of times they can't tell until you've accrued that income, so then it'll be applied to your future checks of saying, "Hey, it's gonna be reduced by that much."

[00:08:47] Robin Rountree: So that might be a big surprise if you don't know about this.

[00:08:50] John Davis: Yes, definitely.

[00:08:52] Robin Rountree: what if I decide to work for myself, have a little small business, lemonade stand that's really successful? Same rules apply?

[00:09:01] John Davis: Same rules apply. So self-employed individuals are still required to pay into Social Security tax. So FICA tax is the tax, and that, that incorporates Medicare as well. For folks that are W-2 employees, what you don't see is behind the scenes, you pay a portion of that FICA tax. You pay half of it, and your employer pays the other half.

[00:09:22] When you're self-employed, you pay both parts of that. So you are still subject to it. Now, the-- Being a business owner, being self-employed, you have different deductions that are available as well. So there's, there's a trade-off there

[00:09:33] Robin Rountree: All right. And then you said something else about pausing Social Security. So I'm 62, I retired, Social Security check's not quite cutting it, but I got offered this great job. I can tell Social Security to wait?

[00:09:50] John Davis: You can, yes. You can pause your benefits and allow them to start to accrue again. Now, you still might be taxed on the benefits that you received. It just kind of depends on how much you would receive in that calendar year and how much you had earned in that calendar year from that job. It kind of depends when you started.

[00:10:07] But yes, you can pause your benefits and resume at a later date

[00:10:11] Robin Rountree: All right. let's say you held out till age 67. You're now getting the full amount? Does it go to the full amount after waiting or...

[00:10:21] John Davis: so sixty-seven is the full retirement age for most. There are some that are earlier than that. But if you... every year that you delay from 62 actually to all the way to age seventy, your benefit increases. So from age sixty-two to age sixty-seven, your full retirement age, it increases at a lesser amount but it does increase by about six and a half percent per year that you delay.

[00:10:44] From sixty-seven to seventy, every year you delay, your benefit increases by eight percent per year. So there is a different set of benefits that you qualify f- at each age, depending on when you elect. The highest amount is at age seventy, but sixty-seven is considered that full retirement age.

[00:11:03] Robin Rountree: Okay, so do you tell people, and I'm sure this is, the answer is gonna be it depends, but do you encourage people more to wait until 67 Or hop on early at 62 or something in between.

[00:11:18] John Davis: That's a great question. And yes, to most things on the personal financial world, they are personal. So it's really gonna depend on your specific situation. But, you know, a lot of the folks that I work with are, are generally married. And so when I'm looking at Social Security, I'm not looking at it through the spectrum of just one individual, it's, it's two.

[00:11:37] And, and so the biggest catalyst for timing of Social Security is gonna be based around life expectancy. And so the longer that you live, the more that it benefits you to delay taking your Social Security. When you're looking at a married couple, it's not just one or each individual and their life expectancy, it's a couple's life expectancy.

[00:12:00] So folks that generally are, are already at the age of, say, in their early to mid-sixties, a, a married couple, one of them is very likely, just statistically speaking, to live into their late eighties. And so what I will often recommend is that one spouse delay as long as possible while the other elects as early as possible.

[00:12:22] And so that's a way to kinda hedge your bet, if you will, in that, hey, if, if you live longer, you've, you've locked in that higher benefit of one spouse waiting. But if you don't, you have one spouse that you've, hey, you've been taking money and getting, getting in what you paid into all those years. And so the last point on that is, and the, the reason that works is because the surviving spouse, although they don't get both Social Security benefits, they get to take the higher of the two.

[00:12:48] So that's, that's why you're solving for the joint couple as opposed to each individual.

[00:12:55] Robin Rountree: Okay, so do you think because Social Security, let's be honest, is a little confusing, that most people should consult some sort of expert before they start accepting those checks?

[00:13:07] John Davis: I, I absolutely, absolutely think they should. And just kind of coming back to your original point about folks that are having to go back to work because they don't have the funds to cover their retirement. I, I think a lot of life and, and personal finance in general, y-you can solve by being proactive and planning on the front end.

[00:13:25] So, you know, there's professionals like myself, certified financial planners, and other financial professionals that are adept at talking about Social Security. I also... To be honest, I've had really good experiences with the folks at the Social Security Administration, too. They're a little bit hard to get a hold of sometimes,

[00:13:39] Robin Rountree: Okay, fair.

[00:13:41] John Davis: get a meeting with them, they are very they're very knowledgeable about Social Security, and I- to be honest, more so probably than myself just 'cause they're doing it every day.

[00:13:50] And so they can really give you a full picture of, "Hey, if you elect at this age, this is what you get. This is a strategy you consider. Hey, what if one spouse passes away? What does it look like? What are the widow's benefits?" They are very good if you have a good set of questions to ask them. I encourage folks that are thinking about starting Social Security to try to set an appointment with somebody at the Social Security Administration.

[00:14:12] Robin Rountree: Okay. So maybe you're thinking, "I wanna get out of the rat race and just start Social Security." Maybe you consider, "I'm gonna get out of this high-stress job and start looking for something not as stressful, but more money than I would get from Social Security." That's one possible way to ease your stress but not live payment to payment.

[00:14:35] John Davis: Yeah, absolutely. And to be honest, that's what I see a lot more with the folks that I work with, is they go back to work or they decide to continue working in a, in a diminished capacity because they, they... honestly, they want something to do. They've been doing whatever they have, whatever their craft is for several decades, and it's hard for them to let go of that.

[00:14:56] It becomes a part of their identity. And so having, you know, something on a part-time capacity or even just something to, bide their time until they figure out what the, the next chapter brings, I find that that's more common with the folks that I see than the folks that actually need the money.

[00:15:13] Robin Rountree: makes sense. Good advice. And since I've got you, I'm just gonna pick your brain. The name of this podcast is Informed Aging. What advice would you give to someone to better plan for aging?

[00:15:27] John Davis: So I think the biggest things for folks is just like I mentioned earlier, is having a plan in, in place. So I worked with folks all across the decades of retirement, the folks that are just entering and the folks that are, you know, nearing the end of life.

[00:15:41] And the one thing I picked up and I've applied personally myself from working with, especially the folks that are getting closer to end of life, is to go and do and enjoy while you can. You know, and this ties to Social Security too, and another reason why people take earlier is, you know, I want that money now because I wanna use it to enjoy my life while I have my health and I can go and do these things.

[00:16:02] 'Cause rarely do I sit across from somebody and they say, "Man, I shouldn't have taken that trip," or, " I shouldn't have you know, done this or that with family when I was in my 60s or, or even 50s." Most oftentimes I, I get the folks that are, "Man, I wish I had." And that is something that I tell my clients all the time is, "Hey, I, I don't wanna be sitting across from the table from you in, in 10, 20 years and you tell me, 'Man, I wish I had...

[00:16:29] I'd used some of this, this money to, to enjoy life.'" 'Cause that's what money is. It's just a tool to buy the things we want and, and need in life. And so that'd be the biggest thing is having a plan for that understanding, you know, We wanna be cautious too. There's bigger expenses at the end of life, especially with long-term care.

[00:16:46] We wanna be cognizant of those type of things. But I think what I would say to folks is just, you gotta live a little and, and enjoy that money while you can. I, I think that'd be my, my biggest thing to folks.

[00:16:58] Robin Rountree: That was not what I was expecting from you, so well done. A lot of financial people like to focus on that scary end of life stuff and you feel like you have to nothing but 

[00:17:05] John Davis: Yep. Exactly.

[00:17:09] Robin Rountree: money. But I like hearing, yeah, you, you need to be aware that end of life can be expensive, but it doesn't need every single dime that you've got. All right. Well, John, you have started your own business recently, so I wish you the very best of luck.

[00:17:27] John Davis: Thank you so much.

[00:17:28] Robin Rountree: to reach out to you, where do they find you?

[00:17:32] John Davis: Yeah. So the best place to start is my website. You know, one of the things that's unique about my business is I'm very transparent. I'm a big believer in transparency. So if you go to my website, jkdfinancial.com, you will see all my pricing and all my services right there. I'm not hiding anything. It's all out front.

[00:17:47] I believe strongly in the value that I provide, but I, I do financial planning and tax preparation. You can also call me at four one seven two six seven one zero four two. You can also email me at So yeah, if you're looking for someone to help you with retirement planning, whether you're approaching or actively there, that is, that is my specialty.

[00:18:09] That's the folks that I generally work with.. 

[00:18:12] Robin Rountree: And you can help anybody in the United States?

[00:18:15] John Davis: That's exactly right. So I work with folks across several different states. I'm based in Missouri but the nice thing about being centrally located is no time zone is really super out of whack for me. But yeah, a lot of folks now will meet virtually. I do have the ability to meet in person, but I think a lot of people post-COVID have been a lot more comfortable doing things virtually.

[00:18:35] Robin Rountree: Well, best of luck to you, and thank you for the information about unretiring. I hope that's not in my future, but now I know the facts.

[00:18:44] John Davis: Yes. Thank you so much for having me on, Robin.

[00:18:46] Speaker 3: Please make sure to subscribe to our podcast, Informed Aging. Tell your family and friends about us. You can find us at facebook.com/informedaging. Today's episode was recorded at ADRC's podcast studio. That's it for now. We're looking forward to our next visit