If you are close to retiring, you may be wondering whether you can retire and still work a job. This is commonly referred to as “ working in retirement ,” and you may consider this option to supplement your income, stay active, maintain a sense of purpose, or pursue a passion. However, you will also need to consider how this could reduce your leisure time, as well as potential tax implications and possible impacts on social security benefits.

If you need help balancing work in retirement with your nest egg, a financial advisor can walk you through different options to minimize taxes and maximize benefits.

Reason to Work in Retirement

Financially, some retirees work to supplement their retirement income to pay for a more comfortable lifestyle. The additional income can help cover unexpected expenses, support family members, or simply allow for more discretionary spending.

Beyond financial reasons, many retirees find fulfillment and purpose in their work. After decades of building careers, they often miss the structure and social interactions that employment provides.

For these individuals, working in retirement can offer a sense of identity and continued engagement with their professional community. It can also present opportunities for personal growth and learning, contributing to a richer, more dynamic retirement experience.

Additionally, some retirees pursue new careers or part-time roles that align more closely with their passions and interests. This shift can lead to a more enjoyable and less stressful work environment, blending the benefits of work with the freedom of retirement.

Impact on Social Security

Continuing to work after claiming Social Security can impact the amount of benefits you receive, particularly if you have not yet reached your full retirement age (FRA) . Here are two things that you should consider:

Earnings Limitations and Reductions

For those who retire early but continue to work, there are earnings limitations set by the Social Security Administration.

In 2024, if you are under your FRA, earning more than $22,320 annually will result in a reduction of your Social Security benefits. Specifically, for every $2 earned over this limit, $1 is withheld from your benefits.

In the year you reach your FRA, this limit increases to $59,520, and only $1 is deducted for every $3 earned above this threshold until the month you reach your FRA.

Impact at Full Retirement Age

Once you reach your FRA, the Social Security Administration says that your earnings will no longer be used to reduce your benefits and it will recalculate the amount to give you credit for the months where benefits were reduced or withheld.

Additionally, continuing to work could have a positive effect on your benefits. If your current earnings are among your highest 35 years of income, they can replace lower-earning years in your Social Security calculation and potentially increase your monthly benefit amount.

Tax Implications of Working in Retirement

If you plan to work in retirement, here are four significant tax implications that you should consider:

• Social Security taxes : If you continue to work while receiving Social Security, your benefits might be taxed based on your combined income. For example, if your combined income exceeds certain thresholds ( $25,000 for individuals or $32,000 for married couples filing jointly ), up to 85% of your benefits could be taxable.
• Tax bracket : Your combined income from Social Security, pensions, investments and new employment may push you into a higher tax bracket, increasing your overall tax liability. This could lead to a higher marginal tax rate on your earnings and impact other aspects of your financial plan.
• State income taxes : Retirees working part-time or full-time may need to pay state income taxes on their earnings, depending on where they live and work. Some states tax Social Security benefits and other retirement income, which can add another layer of complexity to your tax situation. Understanding the state-specific tax rules is essential for accurate tax planning.
• Required minimum distributions (RMDs) : If you have retirement accounts such as a 401(k) or traditional IRA, RMDs must still be taken after reaching age 73 (age 75 if you turn 74 after Dec. 31, 2032). These distributions are taxed as ordinary income and, when combined with employment income, can significantly increase your taxable income. Failing to take RMDs can result in substantial penalties, adding to your financial burden.

Impact on Healthcare Costs

One primary benefit of working in retirement is the potential access to employer-sponsored health insurance, which can reduce out-of-pocket expenses compared to individual plans. This can be especially advantageous for retirees under 65 who are not yet eligible for Medicare .

However, income earned from post-retirement work can also affect eligibility for certain benefits and subsidies. Higher income levels might lead to increased premiums for Medicare Part B and Part D due to income-related monthly adjustment amounts (IRMAA) .

Bottom Line

Balancing retirement with work can be a rewarding opportunity, but you should also consider the financial implications. These include potential impacts on Social Security benefits, tax obligations and assessing how continued employment could affect your healthcare costs.

Tips for Retirement Planning

• A financial advisor can help you analyze retirement investments, and create a plan to grow and protect your nest egg. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now .
• Your annual Social Security payment is based on your income, birth year and the age at which you elect to begin receiving benefits. SmartAsset's Social Security calculator can help you estimate your benefits.

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