Retirement: Returning to Work as a Consultant

The term "double dipper" hasn't been around that long. According to Webster's, it popped up around 1974 and referred to a rare breed of recently retired government employee who got hired back as an independent consultant.

They are no longer a rarity. The Great Recession's massive layoffs have turned many recently unemployed into new versions of double dippers: people who took early-retirement packages from companies, local governments, and school systems, are now returning as consultants, sometimes to the very offices they left. They may not be getting dual pensions, but they are working part-time in careers they know, and getting paid on top of their severance or retirement packages.

"Those companies that laid you off? They want you back," say Ceci Rodgers and Lindsay Blakely of BNET, a business-news Web site. "To make up for the expertise they may have lost [companies are] hiring back high-level talent—this time on a project-by-project basis." There's no hard data on how many retirees are currently drawing pensions while they return to payrolls, but anecdotes about them abound, mostly from the public sector. In Nashua, N.H., for example, teachers have been retiring and then returning almost immediately to their classrooms. More than 4,300 public employees in Utah and 9,000 in Florida were collecting pensions while they worked, according to a USA Today report.

Tracking private-sector employees who return as consultants is more difficult, but they are out there, say employment analysts. "This is a growing trend," says John Challenger, of outplacement firm Challenger, Gray & Christmas. "Companies are winnowing down to a smaller core of people who are their permanent full-time employees. Then they call on a much larger group of people that they can bring in for projects." It's happening most in industries where the retirees hold a key skill that's in short supply—special education, nurses, law enforcement, and accounting. Some companies, particularly in the tech field are offering buyouts to workers they intend to rehire as consultants immediately. "They'll give employees a payout. Then they will walk them across the hallway to the temp-staffing company located in their own buildings, and hire them back immediately for 15 or 20 hours a week without benefits," says Bob Skladany, a Waltham, Mass., career consultant.

If the buyout was generous enough, that can be a good deal for the worker, who will be earning hourly consulting fees on top of their severance benefits. It can be an especially good deal for the retirement-ready. Workers who can live off of their early-pension packages and have health insurance can go back as a part-time consultant at a higher hourly rate than they might have previously earned. But it isn't always win-win: Skladany was research director at RetirementJobs.com when he was laid off and almost immediately offered his job back at a freelance rate that he says would have required him to take an 80 percent pay cut. "I said 'no thank you' and started consulting on my own, instead," he said.

As for the double-dipping public workers, they may soon lose their sweet deals. State and local governments are clamping down on the practice. Florida is requiring a six-month waiting period before a pensioner can go back to work in state government. Earlier this month, New Haven, Conn., banned the practice altogether and is now in the midst of laying off city contractors who used to work on salary for the city. Utah, New Mexico, and South Dakota are among states considering changes.

So it behooves retirees who are looking to get back to work as consultants to plan their move well. They won't be able to get their cushy health-insurance benefits back, and they'll have to pay their own Social Security and Medicare taxes, so it's important to make sure they set their fees high enough to cover those costs of self-employment.

The money they make consulting could hit them hard, taxwise, as well. Anyone under 66 who has started earning Social Security benefits will lose some of those benefits once they earn more than $14,160 a year—so they wouldn't want to take on too much of that extra work.

An attitude adjustment might be in order, too, suggests Challenger. "If you spent your life full-time at a company, and were loyal to the company, you might feel like a second-class citizen as a part-timer." On the other hand, if the company is paying you a pension and an hourly fee, you might feel just fine. Especially if you can come in late, leave early, and skip those obligatory employee meetings.