- Working after retirement can impact your Social Security benefits, Medicare and health insurance coverage, pensions and retirement accounts.
- Social Security benefits get complicated if you return to work and start making money. The Social Security Administration uses a term called combined income to determine how much of your check can be taxed. Combined income is a combination of your adjusted gross income and nontaxable interest plus half of your yearly Social Security benefit.
- You can take private health insurance and still keep your Medicare coverage if you return to work for an employer who offers it. Medicare can be either your primary or secondary coverage.
- Returning to work after retiring may affect your pension due to certain tax rules and conditions. If you go back to work, consider adding money to your retirement accounts.
Retirement was once a destination a goal post to mark the end of a long, productive career.
But research indicates that retirement is becoming much more fluid in America.
A 2017 survey from RAND Corporation, a nonprofit research firm, found that almost 40 percent of workers over age 65 had previously retired only to rejoin the workforce.
And for those still in retirement, roughly half said they would return to paid work if the right opportunity presented itself.
According to researchers: The fact that these individuals have access to Social Security benefits and possibly other retirement income suggests they can afford to demand working conditions that more closely match their preferences in order to participate in employment.
So, what motivates people to unretire or start an encore career?
If youre thinking about returning to work, one of two things has happened, Accredited Financial Counselor Susan Greenhalgh told RetireGuide. Youve either been struck with a severe case of boredom and miss the sense of purpose working gives you or youre feeling a financial pressure to go back, maybe due to an emergency.
What Are the Pros and Cons of Returning to the Workforce?
In late 2021, during the COVID-19 pandemic, more than half of American adults 55 and older had left the workforce, according to an analysis by the Pew Research Center. But many people who retired early may be having second thoughts.
More than 10 million Americans ages 65 and older remain in the labor force, according to the Bureau of Labor Statistics. Another nearly 26 million ages 55 to 65 are also working. And the Census Bureau reports a trend of older Americans remaining in or returning to the workforce.
There are pros and cons to back out of retirement and return to work. You may want to compare them and consider your personal desire to return to work to determine your best options.
What Are the Benefits of Returning to the Workforce?
Returning to work offers benefits ranging from extra income to returning to a career that gave you enjoyment or a sense of purpose.
Some of the benefits may depend on whether you enrolled in Social Security at your full retirement age and whether you are enrolled in Medicare.
Pros of Returning to Work in RetirementExtra IncomeGoing back to work can add extra income to your bank account. You can also put more money into an employer-sponsored retirement account and if youre 50 or older, make larger annual contributions. More income can also add to the amount of monthly Social Security benefits you can draw. Extra income in retirement can make it easier to pay essential bills while stretching your retirement savings.Health InsuranceGroup health insurance through your employer can work with Medicare through coordination of benefits. And a group plan through work may end up saving you money if you are on Medicare when you return to work. You may be able to delay Medicare Part B and Part D enrollment while youre working. This could save you hundreds of dollars a month.Easing boredomWork can provide mental stimulation. If you enjoyed working and found meaning through your job, then going back to work may help ease boredom. You could even benefit from trying a new career path to learn new things.Social connectionsIt becomes difficult to create new social connections in retirement. Jobs provide structure and put you into close contact with coworkers. Going back to work can give you almost instant social connections.
Risks of Returning to the Workforce
You should also consider the downsides of returning to the workforce. While some downsides may be the obstacles that come with rejoining the workforce, others may be financial losses you could suffer.
Cons of Returning to Work in RetirementAgeism in the workplaceNearly 80% of older workers returning to the workforce following the COVID-19 pandemic reported confronting ageism, according to a survey by AARP. Workers reported that they were asked to provide birth and graduation dates, as well as other age-related information, on job applications or in job interviews. Older workers were displaced twice as long as younger individuals, and many report earning less than their previous job.Less free timeYour time is no longer your own if you return to work. One of the most appealing aspects of retirement is the ability to set your own hours. That disappears when you have to punch a time clock again. Your schedule may become even more random if you decide on a part-time job.Reduced Social Security benefitsWorking after retirement can put a dent in your Social Security benefits. If you retired and enrolled in Social Security when you turned 62, then you could see your benefits reduced by as much as 30% until you reach your full retirement age. Social Security deducts one dollar from every two dollars you earn above a fixed amount. The Social Security Administration updates the threshold for benefits while working each year.Risk of higher taxesThe extra income from returning to work could bump you into a higher tax bracket meaning, you have to pay higher income taxes. If your combined income hits certain thresholds, then up to 85% of your Social Security benefits could be taxable. Youll also have to pay state and local income taxes depending on where you live and work on your new income.
Financial Considerations of Working After Retirement
Returning to work is a unique, personal decision.
But before you head back, experts like Greenhalgh say its essential to get a firm grasp on your current cash flow and budget.
You need your eyes wide open to your own financial situation, said Greenhalgh, who started her business, Mind Your Money LLC, in 2018 at the age of 62. You need to be honest with yourself about your needs and your capabilities.
As of February 2019, more than 20 percent of adults age 65 and older were either working or looking for work, compared with 10 percent in 1985.
Working in retirement can supplement your income but its important to understand what youll be gaining and potentially losing in the process.
Working after retirement can impact your:
Its important to do a deep dive into these things first, Greenhalgh said. Otherwise, youre going to be surprised at how your benefits may be impacted.
You need your eyes wide open to your own financial situation.
If money is your primary motivator, look for jobs with wages and benefits that fill your income gaps without jeopardizing your benefits or negatively affecting your bottom line.
You can return to work and still collect Social Security retirement benefits.
But certain limits and rules must be followed.
Adrienne Ross is a financial planner in Spokane, Washington. She told RetireGuide that many people take Social Security benefits at age 62 even if they have money saved in a retirement account.
It often seems like a safe, secure idea to take those benefits as soon as possible, said Ross, founder of Clear Insight Financial Planning.
But starting Social Security when youre first eligible reduces your benefits by as much as 25 to 30 percent.
People may claim Social Security at 62 only to go back to work a few years later because theyre not getting as much money in benefits as they anticipated, Ross explained.
Your age determines how much you can earn.Social Security Full Retirement AgesYear of BirthFull Retirement Age195566 years and 2 months195666 years and 4 months195766 years and 6 months195866 years and 8 months195966 years and 10 month1960 and later67
In 2022, you can earn up to $19,560 without impacting your benefits before full retirement age.
However, once you hit that threshold, your Social Security check goes down $1 for every $2 earned.
Social Security does not include other government benefits, investment earnings, interest, pensions, annuities or capital gains when calculating your yearly earnings limit.
For example, you start collecting Social Security benefits at age 62. At age 64, you get a part-time job and earn $25,000 in a year.
This is $5,440 over the limit. Your Social Security check will be reduced by $2,720 that year or $1 for every $2 earned.
In the year you reach your full retirement age, you can earn up to $51,960 in 2022 before your benefits are docked. After the $51,960 threshold, your benefits are reduced by $1 for every $3 earned.
Finally, once you hit your full retirement age, there is no cap to your income and you can even increase your Social Security benefits if you choose to continue working. Should your benefits increase, the Social Security Administration will send you a letter informing you of your new benefit amount.
You will still continue to pay Social Security taxes on your earnings for each additional year you work.
Social Security Benefits and Taxes
If Social Security is your only source of income, you dont need to worry about paying taxes on your benefits.
But things get more complicated if you return to work and start making money.
The Social Security Administration uses a term called combined income to determine how much of your check can be taxed.Combined income is a combination of your:
- Adjusted gross income (This is the amount you get paid at work before taxes are taken out minus adjustments, such as contributions to certain retirement accounts, HSAs and other applicable deductions).
- Nontaxable interest.
- One-half of your yearly Social Security benefit.
If that combined income number is less than $25,000 for an individual, then your Social Security benefits arent taxable.
If your combined income is between $25,000 and $34,000 for a single filer, you may owe income tax on up to 50 percent of your benefits.
If your combined income is more than $34,000, up to 85 percent of your benefits can be taxed.
Each January, youll receive a Social Security Benefit Statement, Form SSA-1099. Use this when you complete your federal return to see if you owe taxes on your benefits.
Although youre not required to have Social Security withhold federal taxes, it might be easier than paying quarterly estimated tax payments.
Social Security benefit taxation is complicated. Reach out to a tax professional or financial planner if you need help.
Other Social Security Considerations
Its smarter financially to delay Social Security benefits until your full retirement age, Ross said.
Still, theres a couple ways to recoup at least some of those losses.
First, if your benefits were reduced because you made more than the income limits mentioned earlier, you actually get that money back eventually. It isnt gone forever.
Heres how it works.
Lets assume you take Social Security at age 62 and receive a monthly benefit of $1,000. At age 63, you decide to go back to work.
You work for 12 months and earn more than the $19,560 income limit. Your Social Security benefits are reduced to $500 for 12 months as a result.
Once you hit full retirement age, those 12 months of reduced benefits are paid back to you.
In this case, youd receive your normal $1,000 monthly benefit plus $500 for 12 months.
After that, your benefit goes back to your standard $1,000 a month.
Heres something else to keep in mind: Your Social Security check is based on your top 35 years of earnings.
If your latest year of work turns out to be one of your highest, Social Security will refigure your monthly benefit and you may see a boost in your check once you hit your full retirement age.
This is different than recouping your reduced benefits, and it likely wont affect you if you returned to work for a low-paying or part-time job.
For more information about working and Social Security benefits, check out the SSAs How Work Affects Your Benefits booklet.
Medicare, Private Insurance and Post-Retirement Work
If youre 65 or older, you likely get health insurance from Medicare or a Medicare Advantage plan.
Original Medicare is made up of two parts Part A hospital insurance and Part B medical coverage. You may also choose to purchase a standalone Medicare Part D prescription drug plan or a Medigap supplement insurance policy.
Most people dont pay a monthly premium for Medicare Part A. But nearly everyone pays a monthly premium for Medicare Part B. In 2022, the Part B premium is $170.10.
If you return to work for an employer who offers private health insurance, you can take it and still keep your Medicare coverage. Youre allowed to have both.
Medicare may act as your primary coverage or your secondary coverage.
You may consider dropping Medicare Part B if you return to work. Some people do this to avoid paying the $170.10 monthly premium in addition to any employer health care costs.
However, this can be tricky. If youre not careful, you may owe penalties and face other issues down the road.
First, your employer must have more than 20 employees. If thats not the case, you may be penalized for dropping Medicare Part B.
If you have applied for or are receiving Social Security benefits, you cannot contribute to an employer health savings account, or HSA. You can withdraw money already in an account, but you can't add to it.
If you have active employer coverage, you can choose to disenroll from Medicare Part B.
Once you lose your employer health insurance or return to retirement, you must sign up for Part B again within eight months.
Otherwise, you may face a lifetime late enrollment penalty.
Meanwhile, you only get two months to sign up for a standalone Part D plan once your workplace coverage ends. You can face a late-enrollment penalty for this, too.
To disenroll from Medicare, youll need to submit a form, CMS-1763, and it must be completed during an interview with a Social Security representative.
Medicare Coverage for High-Income Earners
Lets say you return to work after age 65 and keep your Medicare coverage.
If you land a lucrative second career or consulting position, you may enter a higher income bracket and face Medicare surcharges.
Thats because, by law, high-income earners pay more for Medicare Part B and Part D.
If youre single and earn more than $91,000 but less than or equal to $114,000 a year, you must pay an additional $68.00 a month for your Part B premium in 2022.
For a married couple filing jointly, extra charges start at incomes above $182,000.
A similar, smaller surcharge applies to Part D premiums.
In 2022, an individual who makes between $91,000 and $114,000 a year will owe a $12.40 income-related monthly adjustment amount in addition to their standard Part D premium.
Pensions and Retirement Accounts
Pensions and retirement accounts are two additional ways people supplement income in later life.
But certain tax rules and conditions need to be considered if youre rejoining the workforce.
How Returning to Work Can Impact Pensions
Returning to work after retiring may affect your pension.
Each pension is different, so its important to look at your plans details.
Sometimes, you must be rehired as a part-time or contract worker if you want to work for your former employer and still receive pension benefits.
Other times, returning to work for a former employer will suspend your pension benefits.
You can usually still collect a pension and work full-time so long as its with a different company.
Check with your human resources department and your pension plan provider first to understand any potential penalties.
Retirement Accounts and Required Minimum Distributions
Certain retirement accounts, including 401(k)s and IRAs, follow a tax rule called required minimum distribution, or RMD.
This requires retirement plan account owners to withdraw money starting at age 72.
Even if you continue working past 72, you must take a RMD from your IRA.
If you dont, youll face a potential 50 percent tax penalty.
Roth IRAs do not have RMDs so long as the original owner is still alive.
You might be able to delay taking RMDs from your current employer-sponsored retirement account, such as a 401(k) or 403(b).To delay taking 401(k) RMDs, you must:
- Still be working.
- Have an employer-sponsored retirement account with the business you work for.
- Own less than 5 percent of the company you work for.
If you go back to work, consider adding money to your retirement accounts.
A law known as the SECURE Act of 2019 makes this possible. It allows all retirees to contribute to traditional IRAs and 401(k)s if they earn wages.
People over age 50 can contribute up to $7,000 a year to an IRA. And if your company offers a 401(k) match, take it. Its essentially free money.
This can help increase your savings if you maybe didnt have much money in savings before returning to work, Ross told RetireGuide.
Contributing to a retirement account can also help offset taxes owed on your Social Security benefits because adding money to an IRA or 401(k) plan shrinks your adjusted gross income, Ross added.
How Do You Find a Job in Retirement?
Understand that it becomes more difficult to find a job after you turn 50 whether you retired from your last gig or not.
Returning to the workforce after retirement can bring an extra set of difficulties. Be prepared to face bias but keep an optimistic attitude. All job seekers must deal with rejection before landing the job they want. That may be even more so if youre returning from retirement.
Youll also need to identify the type of job you want and why you want it part time, full time, a return to your old career or starting something entirely new to you.
Steps to Launch Your Job Search After Retirement
Create a professional online presence. Update or launch work-specific accounts on LinkedIn, Facebook, Instagram and Twitter. Post and comment on elements of your profession or career. These can help showcase your career expertise. Use your social media connections to connect with potential employers and find job opportunities.
Create an age-proof resume
Highlight your experience without referencing your age. Keep your resume short, including only relevant or recent jobs but highlighting your accomplishments under a Career Highlights section at the top. Get rid of graduation dates or any other references that may give away your age. Make sure your email address is updated and timely and list your cell phone number never your landline. Dont include a fax number. Include social media info particularly related to the professional profile youve created with career-related social media accounts.
Online job search focused on older workers
There are online job search sites that specialize in connecting retirees and older workers with companies looking to hire, as well as sites that provide resources for older workers looking to get back into the workforce.
- FlexJobs.com: This site specializes in flexible, part-time, freelance and remote-working positions.
- Retired Brains: In addition to helping you launch your own business, this site also lists seasonal, online and remote jobs for retirees.
- RetirementJobs.com: This site matches older workers to companies most likely to hire experienced employees.
- Seniors4Hire: This site bills itself as an online community for employers recruiting workers ages 50 and older that lets you post a resume and search job openings.
- WorkForce50.com: This site focuses on jobs for workers 50 and older, letting you search by location or by employer.
Traditional job search avenues may still be helpful. A job fair can force you to network and do other aspects of your job search that are vital but that most people tend to dislike. It also gives you a chance to meet company representatives face-to-face, making you more than just another resume or application. Plus, it gives you immediate feedback on your resume and experience and how an employer reacts to them.
Retirement is an ideal time to try your hand at self-employment especially if you have retirement savings to support yourself. If theres a hobby you want to turn into a business or a line of work you always wanted to try, this may be a route back to the workforce.
What Environment Should You Work In?
You should carefully consider the type of work environment you want to be a part of before starting your workforce job hunt. The COVID-19 pandemic and subsequent Great Resignation has significantly changed where, when and how Americans work.
There are different advantages and disadvantages that make different work environments ideal for different people.Work Environments to Consider When Returning to the WorkforceIn-person or on-siteYou may want to consider an on-site job if your desire to return to the workplace is heavily driven by a desire for social connections. It may also be better for you if you are looking for the structure you miss from working on-site during your career.Remote workRemote work means no commutes and the ability to work for an employer across the country without having to pack up and move. If you enjoy working on your own from anywhere you may want to consider jobs that offer this option.Flexible workplacesFlexible workplaces bring together the best of both worlds. They allow you to work on-site with co-workers sometimes while working remotely at other times. Hybrid environments can give you social interaction with the flexibility to work from home or on the road. It may also mean working either part-time or full-time, which gives you flexibility in how much of your retirement time you want to give up to an employer.
Remote working has also created new job opportunities for people with limited mobility or other conditions that may make a traditional workplace less appealing.
Ask an Expert: Tips for Working After Retirement
Liz Lopez Executive Career and Business Coach
Liz Lopez founded her company, Captivate Your Audience Business Services, 13 years ago in Tampa Bay, Florida. She provides resume design, job search strategies, LinkedIn training and other services to clients who want to stand out in a competitive, 21st century job market.
1. Make money by pursuing your passions.
Think about what you want to do. What brings you joy in the workplace? Too often professionals make themselves miserable because they go after what they think is available rather than what makes them happy.
Late career is a lousy time to be stuck in a job you dont enjoy. Figure out what feels rewarding, then do the research to determine what jobs or businesses align with your goals and skills.
2. Be adaptable and patient.
Embrace how things work now. The job market changes constantly. There is more automation, its a lot less personal and it can move very slowly. By marketing yourself strategically, you can land an opportunity where you make a meaningful impact and leave a valuable legacy.
3. Update your resume and your Zoom interviewing skills.
Be prepared to develop a resume, cover letter and LinkedIn profile that aligns with current job market trends. Then learn how to interview effectively via video. You need to powerfully show that you are relevant in todays world.
4. Play up your recent work history.
Focus on your history and achievements from the last 10 to 15 years. Otherwise, you can age yourself out of consideration if you insist on talking about work you did 30 years ago. Ageism is sadly very real.
5. Consider speaking with a professional.
If you are not sure how to get started, find a career coach experienced with mature and late-career professionals. Whichever route you take, consult with your accountant or tax professional to understand the impact of any new income.