Working after retirement

Being retired doesn't mean you have to stop working. You may find satisfaction in having a job that really suits your interests, even if it doesn't pay as much as you previously earned. Or perhaps you enjoy the routine that employment instills in your everyday life. You may simply appreciate the extra financial buffer that working in retirement provides you. 

Overall, continuing to work in retirement can help you stay active and connected, as well as provide a myriad of financial benefits. 

However, working in retirement can have implications for taxes, your Medicare costs and Social Security benefits. If you’re considering working after retirement, we can help you understand the broader financial impacts, including how the additional income may affect your overall financial picture.  

Here are key financial considerations when working after retirement: 

What are the financial benefits of working in retirement? 

Working in retirement can provide a myriad of financial advantages. You can use the additional income to: 

• Cover essential expenses: Continuing to work after retiring can help you pay for essential expenses such as housing, food, utilities and health care without using retirement savings. This could enable you to invest some of your savings more aggressively and allow more “lifestyle” spending. 
• Grow your savings: If your employer offers a 401(k) and you’re eligible to participate, you can take advantage of the additional catch-up contributions for those age 50 and older. And if you’re age 60-63, a higher catch-up contribution may be available. Once you reach the 401(k) or IRA annual contribution limit, it may make sense to purchase a deferred annuity, where you can continue saving on a tax-advantaged basis. 
• Increase your financial flexibility and security: Factors such as market volatility, interest rates, inflation, health care and risk tolerance can affect the percentage of savings you can sustainably spend during retirement (i.e., your withdrawal rate). Earning income can offset these factors to help your savings last. 
• Maximize your Social Security benefits: Although you can start collecting benefits at age 62, waiting to collect can pay off. With each year you delay, your overall benefit increases until reaching the maximum amount at age 70. Social Security benefits are based on your highest 35 years of earnings. Since non-work years don’t factor into the benefit calculation, working longer could also increase your Social Security benefit. 

Can I work and collect Social Security at the same time? 

Yes, you can work and draw Social Security retirement benefits at the same time. However, if you decide to collect Social Security before you reach your full retirement age and also continue to work, then the extra income may temporarily decrease your benefit. There also may be tax implications if you work and collect Social Security benefits at the same time. 

How earned income affects Social Security payments 

If you take Social Security before you reach your full retirement age, your benefits are reduced for earnings above a variable annual threshold. Once you reach your full retirement age, extra earned income no longer decreases your benefits.  

¹Earnings include salaries, bonuses, vacation pay and commissions, but not pensions, annuities, interest and investment income or veterans or other government or military retirement benefits, which do not affect your Social Security benefit.

If you retire during a year in which you have already earned more than the yearly earnings limit, you may receive a full Social Security check for any whole month you are considered retired (with limited earnings and not performing substantial services in self-employment), regardless of earnings prior to retirement. 

How earned income affects taxes on Social Security benefits 

If your Social Security benefits are your only source of income, they are generally not taxed by the federal government. However, if you work while receiving Social Security, or receive income from other sources (such as wages, pensions, annuities or investments), part of your Social Security benefits may be taxable. 

Social Security benefits are subject to tax if a person’s combined income (including tax-exempt interest) exceeds certain limits. Up to 85% of Social Security benefits can be taxed. 

Social Security retirement benefits calculator

Use this calculator to estimate what your retirement benefit amount could be. 

Run the numbers

Are my Medicare benefits affected by working in retirement? 

Once you turn age 65, you’re eligible for Medicare, regardless of your employment situation. However, if you’re still working, you’ll want to consider the following: 

• Does it make sense to stay on your employer’s health plan? If you work past age 65 and have health insurance through an employer or a spouse’s employer, you may be able to stay on your health plan or you can choose to enroll in Medicare. 

  When making this choice, it’s important to confirm whether your employer will continue to provide coverage (small employers are not required to provide health care for employees who are also eligible for Medicare) and then account for your personal physical health needs. If your employer does offer coverage for employees ages 65+, compare their plan offerings and costs to that of Medicare’s. While Medicare is a valuable program for many, in some cases, it may be more financially beneficial for you to stay on your employer’s health plan. If this is the case, you can delay enrolling in Medicare until you stop working. 

• Will the additional income make you subject to an additional Medicare surcharge? If you choose to continue to work in retirement, while using Medicare as your primary insurance, additional income may impact your Medicare costs. If your modified adjusted gross income (MAGI) from two years ago exceeds certain thresholds, you’re required to pay a surcharge on top of the standard premium for Original Medicare. The surcharge, known as the Income Related Monthly Adjustment Amount (IRMAA), kicks in when your MAGI is above a certain threshold, which is updated every year. The IRMAA surcharge can significantly increase the amount you’re required to pay for your monthly premiums and prescription drug plans.

How might working in retirement affect my taxes? 

Retirees often draw from multiple income streams to fund their retirement expenses, including Social Security, retirement accounts, annuities and other passive income ventures. Adding an extra income source — like wages earned through a W-2 job or freelance work — may unintentionally push you into a higher tax bracket and increase your tax liability. As such, it’s a smart move to be aware of your tax bracket, especially if you are on the threshold of a higher or lower tax bracket, and take steps to manage your income accordingly. 

Can I collect a pension while still working? 

It depends. After retirement, if you’re working for a new employer while collecting a pension from a previous employer, then your pension will not be affected by your earnings. 

However, if you work for the same employer from which you are collecting a pension, they may have specific rules around how you can collect these payments in retirement: 

• Full pension payments while working: Some retirement plans let you start collecting a full pension at the retirement age defined by the plan, even if you continue to work for that company. 
• Suspended pension payments while working: Other plans suspend your pension payments for the time you are working; they may or may not offer increased payments when you finally retire. 
• Phased retirement: This arrangement allows you to work part-time, as early as age 62, while collecting some or all of your pension benefit. Depending on the plan, your employer may continue to provide medical benefits for you as well. However, if your pension amount is based on the earnings in your final years of work, switching to part-time could lower your pension payments. 

Is working in retirement right for you? 

We can help you understand the overall impact that working in retirement can have on your financial goals and retirement income withdrawal strategy.