Working in retirement: 5 questions

NEW YORK (Money Magazine) -- If you're like most people, you're probably planning to take a job in retirement. If you're like Jerry Carlson, you'll take two or three.

When Carlson, now 74, retired 10 years ago from his position as an elementary school principal in Bloomington, Minn., he knew he wouldn't just kick back and enjoy his memories. "I wasn't going to be a couch potato," he says. "I've seen what happens to friends who do nothing all day. It's not pretty."

Jerry Carlson, 74, was an elementary school principal. Now he helps VIPs navigate Minnesota's airport.

Ex-cop Norm Strasheim, 63, earns about $20,000 a year working 25 hours a week with a program helping troubled families. (Janeen Lane, 39, the mother in this picture, completed a master's degree in counseling while in the program.)

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So even though the combination of Social Security, a pension and savings left him secure, he began working 20 hours a week for another retired principal who had started a business assisting ticket holders on charter flights.

That led to another part-time job with Northwest Airlines helping VIPs navigate the airport. Almost eight years later, Carlson re-retired, this time taking a pension in a lump sum.

But before he took off, another travel service recruited him, so now Carlson spends up to 15 hours a week ushering celebrities and politicians through the airport.

"As long as my health holds up," says Carlson, "I'm going to continue doing this indefinitely."

Okay, you may not spend your retirement squiring around Minnesota's A-list. But Carlson's experience is a good example of why you'll want to work after leaving your career.

Even if you're pretty well set, it doesn't hurt to have a few extra bucks coming in during retirement. And research shows that older people who work - especially those in jobs they enjoy - tend to be happier and live longer than those who don't.

But you need to be realistic too. The type of work you can most easily get as a retiree won't offer the pay and prestige you once commanded; Carlson oversaw 700 teachers and students and made close to $90,000 as a principal.

Now he makes about $15,000.

Moreover, despite all the talk about employers tripping over themselves to hire retirees because of a looming shortage of younger workers, many companies have reservations about taking on oldsters.

A 2006 survey of 400 companies by the Center for Retirement Research at Boston College found that 39% considered older workers more expensive than younger ones while more than 20% questioned older employees' ability to learn new tasks quickly.

The graying of America, it seems, is happening more quickly than the graying of the workplace.

Bottom line: You've got to be flexible and resourceful, maybe even more than when you were climbing your career ladder. So before you start polishing your résumé, ask yourself the following five questions.

The answers will give you a realistic sense of the opportunities and challenges you'll face, and they could help you find work that thickens your wallet and engages your brain.

Depends on how long and how hard you want to work. If you want maximum flexibility, then your best shot is a service industry job - anything from a retail sales associate in a department or specialty store to a customer rep for a hotel or resort.

The good news is that jobs requiring customer contact are the very positions that employers like to hire retirees to fill.

The reason: Older workers tend to be more patient and attentive than younger ones, and they treat customers better. That makes your age an advantage.

Alas, that's not so true if you want to parlay your professional or managerial expertise into a job in your old or a related field, especially if you were a mid-level or higher manager whose technical skills aren't up to date.

You may need more training to make you competitive.

Having done that, or if your skill set is already highly marketable, you've got several options to pursue.

One is "phased retirement," in which you stay at your present job on a reduced work schedule or, if you've already retired, go back to your former employer as a temporary or contract employee.

Until recently, tax and labor laws made it difficult for companies to accommodate such requests if you would simultaneously be receiving pension benefits.

A 2006 law has loosened those restrictions, but, says Russ Jones of employment consultant First Transitions, "this is a new area, and most companies are still trying to figure out how to do it."

In other words, you'll have to take the initiative. Begin by going to the HR department, explaining what you have in mind and seeing whether such an arrangement is an option.

The more willing you are to accommodate your employer's needs while negotiating the best deal for yourself - agreeing to be more available when workloads peak, for example - the better the chances you can work something out.

You can also sign on with an organization that focuses on placing older workers.

Your Encore, for example, recruits retired engineers and scientists and matches them with one or more of its 25 Fortune 500 member companies on a project basis. And big national employment agencies including Manpower, Kelly Services and Robert Half now all have professional staffing divisions that offer temporary employment in such areas as accounting, finance, technology, law and advertising.

The most likely way you're going to find a job in your field or a related one, though, is the way you did before you retired: through your network.

When Norm Strasheim retired after 32 years as an Arvada, Colo. police officer, he let friends at his church know that he was looking for part-time work. A contact led him to a local nonprofit services group where instead of dealing with people who are in trouble, the ex-cop now tries to keep them out of it.

Strasheim, 63, earns about $20,000 a year working 25 hours a week with a program that provides housing for distressed families and encourages parents to go back to school.

"Most of the time the work is satisfying," says Strasheim, "although there are cases that can drag you down."

If you can't find something that excites you, you might launch a business of your own. And in fact, older people work for themselves more often than younger ones.

In 2004, 24% of working men 62 to 64 years old and more than a third of those 70 and older were self-employed, compared with about 13% of workers from their mid-twenties through midfifties.

No doubt that's partly due to the difficulty of finding work past 60. But it's worth remembering that most businesses start up on $10,000 or less, so you needn't burn through your retirement stash to start calling your own shots.

You may, however, find yourself working harder than you expected. After leaving her job as a customer service rep for General Motors in Tampa nine years ago, Rose Almendinger, now 63, decided to start her own pet-care business, Peace of Mind Pet Sitting of Tampa.

"I didn't want to work in an office anymore," she says. "And having grown up on a farm in Ohio, taking care of animals seemed a natural fit."

Almendinger and her husband Ron, a retired bank vice president, now run the business together. And while the operation is successful, bringing in about $40,000 a year, it's also a big commitment.

"We do work seven days a week," says Rose. "We don't expect to do this forever."

If you're looking for part-time or temporary work, the hourly rate typically starts at around $8 to $10 for basic retail sales and customer service jobs, although it could easily rise to $20 an hour or more if you have specialized experience in, say, technology or fashion, according to Salary.com, a leading compensation-consulting firm.

Retail supervisors can make up to $30 an hour.

The pay grade rises considerably for professional and managerial work. Licensed and registered nurses can often pull down $20 to $60 an hour, while someone with highly specialized skills in technology, marketing or financial analysis might get upwards of $70 to $100 an hour.

"If employers really need someone with your experience, then you may be able to get the same hourly pay you earned during your career," says Arthur Koff, founder of RetiredBrains.com. "But if your skills aren't in such high demand, you might have to accept half or less of what you were earning."

Remember too that higher-paying work is typically done on a project basis, with stints usually running from a few weeks to a few months. There will be down periods between assignments and other times when the workload is intense.

And you almost certainly won't be doing the same job that you did when you were working full time.

Take John Laakso. A former Boeing engineer, he has made about $20,000 annually working with Your Encore's network over the past two years. Among the projects he's worked on: creating sturdier packaging for laundry detergent and developing more environmentally friendly adhesives for yacht builders.

"Designing lightweight structures for spacecraft involves many of the same engineering skills that you need to design a sturdier carton of milk," says Laakso, 69. "What companies want are skills and experience and someone who might be able to bring a different perspective to a problem."

MONEY turned to RetirementJobs.com and Salary.com for a list of best-paying jobs for retirees. You can search online job postings targeted to older workers at both RetirementJobs.com and RetiredBrains.com.

With more and more companies paring back or eliminating retiree health-care coverage, access to medical insurance can be a bigger attraction for older workers than salary, particularly if you or your spouse is under 65, the age for Medicare eligibility.

But finding part-time or temporary work that also offers health care poses a major challenge. You'll almost certainly have to work at a large company, and even then most of them require you to work 30 to 35 hours a week to qualify for benefits, claiming that providing them to workers who work fewer hours is simply too expensive.

That can especially be the case for older part-time workers: A recent Towers Perrin study shows that workers 50 to 65 years old use 1.4 to 2.2 times as much health care as workers in their thirties and forties. Still, some big employers, at least, are loosening up.

"Those that want to attract older workers know just how powerful a lure health care can be," says Robert Skladany, director of research for RetirementJobs.com.

Companies such as John Hancock now offer the same comprehensive health coverage at the same cost to employees who work as few as 22½ hours a week as they do to full-time workers.

"We seek out people who've had a career but still want to work and have something to contribute," says Peter Mongeau, a human-resources vice president at John Hancock. "And one of the ways we attract them is by extending health-care benefits."

It's more likely, though, that if a firm offers health-care coverage to parttimers, the premium payments will be higher than for full-time employees or the package will be a scaled-down version of what regular employees get.

Bottom line: Finding part-time work that offers some health coverage may become easier in the years ahead, but for now you'll have to do some serious looking.

If you've got a job with benefits and you want to scale back your hours, keeping your benefits in place should be your top priority when you talk to HR.

Although the number of age-discrimination charges filed with the Equal Employment Opportunity Commission has declined every year since 2002, let's face it, age bias remains a formidable obstacle for older workers.

Ron Therrien, 70, sees it in "the look."

The former owner of a women's clothing chain, Therrien has spent much of the past decade looking for a retail management slot.

Eventually he turned to selling real estate, but now that the housing market has dried up, he's living off the equity in his Florida home.

In September he applied for a buyer's job with a handbag importer, but his follow-up calls haven't been returned. "They don't want you because of your age," he says. "They can't tell you that, but you know it. They give you 'the look.' "

So how can you gauge whether an employer is interested in hiring older job applicants or is just going through the motions?

One good sign is simply whether you see plenty of older workers when you visit the company's stores or offices.

Another is if a company encourages flexible scheduling that can accommodate retirees looking to fit a part-time job around travel and other pursuits.

CVS, for example, runs a "snowbird" program that allows mostly older employees ranging from pharmacists to cosmetic consultants who live in the Northeast and other cold-weather states to work in Florida and other warmer climes during the winter, when stores in those areas of the country are at their busiest.

If, on the other hand, the person interviewing you harps on how much the company values "vitality" and "high energy" in its workers or if he or she comes right out and asks whether you'd really be comfortable working with and for younger people, those may be tip-offs that your résumé is headed for the circular file, says Skladany.

You can also look for businesses that have publicly committed to hiring older workers.

RetirementJobs.com, for example, certifies as "age friendly" those companies whose hiring, training and compensation policies it believes are conducive to retaining and attracting older workers.

So far 45 employers have received the designation. Similarly, AARP's National Employer Team program consists of 30 large companies in seven industries that actively look to hire workers 50 and older.

Employer lists are available on both groups' Web sites.

The Social Security version of an urban myth is that working while you're collecting benefits early will cost you money.

Here's the real story.

If you collect Social Security before you reach full retirement age (which, depending on when you were born, ranges between 65 and 67) and your earnings exceed certain limits, your benefit will be reduced. (Once you hit full retirement age, that's no longer the case.)

But you don't actually "lose" that money.

Why? Because the Social Security Administration later increases the size of your check to make up for the reduced benefits. And as long as you live roughly to life expectancy, you'll receive more than enough in total benefits to make up for any earlier cuts.

Besides, Social Security considers all your earnings when calculating your benefit. So working in retirement can increase the size of your Social Security check apart from any adjustment for missed checks.

The other Social Security "penalty" that you may wonder about is whether working will subject your benefits to income taxes.

The reality is that you're probably going to be paying taxes on your benefits whether you work or not. If you've saved diligently enough during your career to accumulate a decent-size nest egg that you start drawing down or you receive a traditional check-a-month pension, you'll likely be beyond the income thresholds that trigger taxes on your Social Security benefits.

A married couple collecting $30,000 in Social Security and pulling $40,000 a year from retirement accounts and/or a pension would owe income tax on just over half of their Social Security benefits.

And if that same couple increased their draw by $15,000 - or, for that matter, had $15,000 in investment income from taxable accounts - the percentage of Social Security benefits subject to tax would rise to 85%, the maximum level.

To determine if your income exceeds the tax thresholds first take 50% of your Social Security benefits and add it to your other income. If the total exceeds $32,000 ($25,000 for singles), then up to 50% of your benefits are taxable.

If the total exceeds $44,000 ($34,000 for singles), then up to 85% are taxable.

So unless your retirement income is modest, some portion of your Social Security will be subject to income taxes.

Still, if you're concerned that working might subject a big chunk of your benefit to the tax man, there are a couple of defensive moves you can make.

If you think you'll work in retirement but you haven't begun collecting Social Security yet, you might postpone taking benefits for a few years. (Until age 70 this would also increase the size of your check.)

Another strategy is to pull money from a Roth IRA rather than a 401(k) or a regular IRA in the years you work in retirement. Since Roth withdrawals don't count when calculating whether your Social Security benefits are taxable, you may be able to shelter some or all of your benefits from the IRS.

A smart move, if you haven't retired yet and don't have a Roth, is to do a Roth conversion, as long as your modified adjusted gross income isn't greater than $100,000 (although this restriction disappears starting in 2010).

It's entirely possible, though, that no matter what you do, you won't be able to avoid paying tax on some portion of your Social Security, especially if you're working.

So take some consolation in the fact that as long as tax rates remain below 100%, you'll always come away with more money by working than not.

In the end, however, the upside to working in retirement isn't just in the paycheck. "It's more about staying involved," says Laakso, the former Boeing engineer. "I enjoy working with younger people and giving something back. It keeps your mind receptive to the world around you. And it sure beats doing Sudoku puzzles."