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Working After Retirement? Some Things to Keep in Mind

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What we’ll cover:

  • Working after retirement could impact your Social Security benefits and income tax obligations
  • Tax planning can be especially important if you decide to go back to work
  • If your new job offers health care, you’ll have to think about whether it makes sense for you to sign up for it or keep the policy you have
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The idea of working after retirement can be a head-scratcher. After all, isn’t the whole point of retiring not to work anymore? But some retirees are choosing to “unretire,” going back to work either part-time or full-time for various reasons. 

For some people, boredom sinks in, and they begin to miss the routines, sense of purpose and camaraderie that work provided. Others come out of retirement for financial reasons, like wanting to make a little extra money to help supplement their income. 

Whatever the case may be, choosing to work after retirement is a personal decision, and it’s one that requires planning. Sure, there’s the whole process of finding and interviewing for a job. But there are a few financial considerations to take into account, too. 

Some people may not know this, but working after retirement could impact your Social Security benefits and income tax obligations. It’s important to think these details through as you navigate your post-retirement work options. 

In this article, we’ll go over some key points to keep in mind. 

First things first, do you know your Social Security’s full retirement age?

Most of us probably have our Social Security number down pat. But another important number to know is your full retirement age (or FRA) because it’ll help you understand how your Social Security benefits might be impacted by going back to work. 

If you look at the Social Security Administration’s retirement age chart, you’ll notice that your FRA depends on the year you were born. You may have also noticed that your full retirement age gradually increases by a few months for every birth year. For example, if you were born in 1959, your FRA is 66 and 10 months. And for those born in 1960 or later, it’s 67. 

Take a moment to look up your FRA on the Social Security Administration (SSA) website. It’ll come up again in our discussion ahead.  

Working after retirement could impact your Social Security benefits

If you’ve already started to collect Social Security retirement benefits, the good news is you can continue to receive them even if you decide to go back to work. 

But here’s the thing: SSA may reduce the amount of your benefits if you haven’t reached your full retirement age and if you earn more than a certain amount.  

Let’s look at a few scenarios to help put things into context.

Returning to work after you’ve reached full retirement age

We’ll start with a straightforward example. 

If you’ve reached your full retirement age and collect Social Security, going back to work will not impact the amount of your Social Security benefits. In other words, you may keep all your benefits – no matter how much you work or earn. (Nice!) 

But what if you haven’t hit your full retirement age? Here are a few details to be mindful of. 

Returning to work before you’ve reached full retirement age

First, a quick refresher: You may already know that you don’t have to wait until your full retirement age to start collecting some of your Social Security benefits. We say “some” because while you could tap into your Social Security as early as age 62, you won’t be able to collect the full amount of your benefits until you reach your FRA (the SSA only allows you to collect a percentage of it; see “Starting Your Retirement Benefits Early” for more information).  

With that in mind, let’s look at how your Social Security benefits may be impacted if you return to work before you’ve reached your full retirement age. 

If you’re a retiree who tapped into your Social Security benefits early and decided to go back to work, the SSA will reduce your benefits if you make more than a certain amount. For 2021, that threshold amount is $18,960 – so, $1 will be deducted from your benefits for each $2 you earn above $18,960 . If you earn less than that, your Social Security benefits won’t be affected. 

Here’s a quick example: Let’s say you’re not ready to settle into that rocking chair just yet. So you decide to start a part-time consulting job. You earn $20,000 a year from that gig. That’s $1,040 over the 2021 limit ($20,000 - $18,960). Your Social Security benefits will be reduced by $520 for that year (deduct $1 for every $2 earned over the limit). 

But wait, there’s more…

In the year that you’ll hit your full retirement age, the SSA gives you a little more wiggle room. For example, if you’ll reach your FRA in 2021, the $18,960 threshold is increased to $50,520. In other words, you could earn up to $50,520 before the SSA starts reducing your benefits – deducting $1 for every $3 earned above $50,520 until the month you reach your FRA. 

Here’s a basic example from the SSA: Let’s say you haven’t reached your FRA at the beginning of 2021 but you’ll reach it in November 2021. You expect to earn $51,540 in the 10 months from January through October. During this period, SSA would withhold $340 ($1 for every $3 you earn above the $50,520 limit). 

That was a lot of information, we know! But hopefully our examples above helped. The SSA provides a few more here if you want a closer look. 

And if you have questions, consult a financial advisor. They can help you crunch the numbers to see how your individual benefits might change if you go back to work. 

Good to know: If you’re frowning at the thought of your Social Security benefits being docked just for working in retirement, don’t worry. According to the SSA, you’ll get that money credited back when you reach your full retirement age (exceptions may apply). 

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Pay attention to income taxes

Tax planning is important whether you’re retired or not. But it can be especially important if you decide to unretire and go back to work. 

If you’re receiving Social Security benefits, you might have to pay taxes on those benefits depending on your personal financial situation. And heads-up: The rules and calculations can get complicated. 

For instance, if you have other taxable income – such as wages, self-employment, retirement or investment income – on top of your Social Security benefits, think about checking in with a tax professional to understand the potential impact on your tax obligations.

Another thing to keep in mind: Sometimes, the combination of your Social Security benefits, money earned from going back to work and any retirement withdrawals you may be taking (like from an IRA) could put you in a higher tax bracket.

It’s always nice to avoid surprises come tax season. If you’re thinking about slipping out of retirement to go back to work, consider checking in with a tax professional first. They can help you understand how wages from your new job(s), Social Security benefits and any other retirement income might impact your tax bill. 

Understand your health insurance options

For some people, going back to work means you might have access to company benefits again, like a health care plan. To be sure, this won’t be the case for everyone because it depends on your work arrangement – for example, some may prefer to be self-employed. 

If your new job offers health care, you’ll have to think about whether it makes sense for you to sign up for it or keep the policy you have (whether that’s private insurance or Medicare). The decision will depend, in part, on your health care needs and the level of coverage and cost you’re looking for. In short, you’ll want to compare your options. 

Just as with taxes, there can be a lot of rules and details to navigate. While we can’t cover them all in this article, here’s something to think about:

If you’re 65 or older and enrolled in Medicare, you may have the option of signing up for a health care plan through your job and keeping your Medicare policy. In some cases, your workplace plan and Medicare could work together to help meet your coverage needs. But before making any decisions, check in with your employer to see how their health care plans coordinate with Medicare (also see: “How Medicare works with other insurance”).

This is important: Medicare rules are no walk in the park. Enrollment and coverage details can be complex, and failure to enroll in time could result in penalties. So definitely talk to a financial advisor to understand your obligations and options. You may also contact Medicare directly for assistance through their website or 24/7 helpline

Parting thoughts

People come out of retirement for different reasons. If you’re thinking about it, ask yourself if this is something you need or want to do. In other words, is it about the money or do you simply want to do more with your days? 

If you’re worried about running out of money in retirement, consider talking to a financial planner first. They can help give you a better sense of where you stand financially. (Your retirement accounts may be in better shape than you think!) And sometimes, you may just need to make some adjustments to your spending or withdrawal strategy – without having to go back to work for extra money. 

Now, what if it’s not about the money? What if you’re just feeling bored? 

If you’re financially secure but just want to do more with your time or make new friends, think about exploring a new hobby or getting involved in your local community. For example, mentoring can be a great way to meet new people, and we bet you have a lot of wisdom to share!

Point is: There are many different ways to fill your time. The answer doesn’t always have to be “more work.” You’ve worked hard enough to earn your retirement – enjoy it!

This article is for informational purposes only and is not a substitute for individualized professional tax advice. Individuals should consult their own tax advisor for matters specific to their own taxes. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions. Goldman Sachs Bank USA and Goldman Sachs & Co. LLC are not providing any financial, economic, legal, accounting, tax or other recommendations in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates. Neither Goldman Sachs Bank USA, Goldman Sachs & Co. LLC nor any of their affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements of any information contained in this document and any liability therefore is expressly disclaimed.