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How Unretiring and Going Back to Work Impacts Your Retirement


For many retirees, reentering the workforce can provide relief from inflation and structure the week in a productive way. However, doing so presents a host of considerations, particularly concerning their Social Security benefits. Understanding the intricacies of this process is crucial to make informed decisions. Here are the key aspects of unretiring, including the impact on Social Security, taxation and crucial steps before taking the plunge. By addressing these factors, retirees can approach their return to work with confidence and clarity.

If you are thinking about going back to work, a financial advisor can help optimize your retirement plan. Speak with a financial advisor today.

Reduction of Social Security Benefits

Regarding Social Security benefits, there are certain rules and considerations to be aware of when you return to work after you’ve already started receiving benefits.

Earnings Test

If you have not reached your full retirement age (FRA) and return to work, your income is subject to an earnings test. The current FRA of retirees is 66 to 67, depending on your birth year. The full retirement age is 66 if you were born between 1943 and 1954. If you were born from 1955 to 1959, add two months for every birth year until the full retirement age reaches 67, which is the age for those born in 1960 or later.

If you’re younger than your full retirement age for the entire year while working, you’ll have $1 deducted from your Social Security for every $2 earned above the annual income limit. For 2023, the annual limit is $21,240. Therefore, you can earn up to this amount without your Social Security Check taking a hit.

If you work during the year you reach full retirement age (but haven’t reached it yet), the benefit deductions change. Specifically, the SSA will deduct $1 from your benefit for every $3 earned above an earnings limit of $56,520. Once you reach full retirement age, the government uses the lower limit. 

Request for Withdrawal or Suspension

Withdrawals and suspensions are possible if you’ve already started receiving Social Security benefits but want to revoke them. This way, your work income won’t interfere with Social Security.  

If it’s within 12 months of starting your benefits, you can withdraw your application by filling out form SSA-521. Doing so means that you pay back all the benefits you’ve received, and it’s as if you never started taking them. You can then reapply for benefits at a later date when you are ready.

If you’ve reached your full retirement age, you can voluntarily suspend your benefits. By doing so, you can accrue delayed retirement credits, increasing your monthly benefit amount when you eventually start receiving benefits again. Specifically, by waiting until age 70 to start taking your benefit, you can boost your income by 32% when compared to with benefits taken at 67.

Tax Implications

Adjusting your Social Security benefits creates tax consequences. Specifically, if you file single and have a total income (from all sources, including work, retirement accounts and Social Security) between $25,000 and $34,000, you may be able to exempt 50% of your benefits from taxes. An income above $34,000 means 85% of your benefits are taxable. If you’re married filing jointly, the limit is $44,000. However, the government typically won’t tax your Social Security checks if they are your sole source of income.

Increase in Medicare Cost

A senior reviewing Medicare coverage if she returns to work.

Retirees become eligible for Medicare upon turning 65. If you aren’t receiving Social Security at that time, you must enroll to receive this government-sponsored health coverage. However, if you’ve already started taking Social Security benefits when you turn 65, the government automatically enrolls you in Parts A and B. Additionally, a portion of your Social Security checks will pay your Medicare Part B premiums (and Part D if you enroll). 

Withdrawing your application for Social Security benefits also affects your Medicare. Specifically, if you keep your Part B coverage after withdrawal from Social Security, you’re responsible for paying future premiums. You risk losing coverage if you don’t keep up on these premium payments, which you must pay manually instead of relying on your Social Security check.

Lastly, Social Security benefits can increase Medicare costs if your checks push you past an income threshold. For example, if you file single and make less than $97,000 annually, your Part B premium is $164.90 per month. On the other hand, an income between $97,000 and $123,000 increases your premium to $230.80.

Other Considerations When Reentering the Work Force

Reentering the workforce has more than just financial implications. Getting back to work after retirement can be challenging for retirees for several reasons:

Technological Competency Is a Must

The rapid pace of technological advancements means that the skills and tools required for many jobs are constantly evolving. Retirees who have been out of the workforce for a significant period may find it challenging to catch up with the latest technologies and software used in their industry.

This knowledge gap can make it difficult for retirees to compete with younger, tech-savvy candidates for certain positions. Employers may hesitate to hire individuals who require extensive training to get up to speed with modern technology.

Age Discrimination Is Possible

Despite legal protections against age discrimination, it can still occur in the job market. Some employers may hold biases against older workers, assuming they may not be as adaptable, could have health concerns, or won’t stay in the job for an extended period.

This discrimination can lead to challenges in finding suitable employment opportunities, even for highly qualified and experienced retirees. It can also result in lower wages or limited advancement opportunities compared to their younger counterparts.

Adjusting Your Lifestyle Is Essential

Retirement typically involves shifting to a more relaxed lifestyle, including less structure and fewer responsibilities. On the other hand, returning to work requires readjusting to a more strict schedule, potentially longer work hours, and managing the demands of a job alongside other personal commitments.

This adjustment can be particularly challenging for retirees who have become accustomed to a leisurely pace of life. Balancing work with personal interests, family time and potentially caregiving responsibilities can be demanding, leading to increased stress levels.

What to Do If You Decide to Unretire

A senior making a checklist to decide the pros and cons of unretiring.

Deciding to unretire means considering the financial consequences of earning a paycheck again. Here’s what to do before starting a new job to ensure that you have the right financial footing:

Check on Your Pension

Before returning to work, review the terms and conditions of your pension plan. Some pension plans may have restrictions or penalties for working while receiving benefits. Understand how returning to work will affect your pension by discussing your plans with the pension administrator or a financial advisor for personalized guidance.

Take Advantage of 401(k)

If you find an employer offering a 401(k), you can contribute to the plan to build more wealth for your retirement. Additionally, working allows you to bypass the required minimum distributions (RMD) rules. Therefore, working into your 70s allows you to boost your retirement accounts without taking a dime out of them (unless you need to, of course). 

You can also roll over a 401(k) from a previous employer or an IRA into your new 401(k). This strategy puts your nest egg in one place and allows you to avoid RMD penalties. Lastly, take advantage of catch-up contributions if you can: Savers 50 and older can contribute $7,500 more per year for a 401(k) and $1,000 more for an IRA.

Look at Your Social Security Benefits

If you haven’t reached your full retirement age, beware of the earnings limits and how they impact your benefits. If you’ve already started receiving benefits, consider whether you want to request a suspension to accrue delayed retirement credits or if it makes more sense to continue receiving benefits while working.

Assess Your Emotional and Financial Needs

It’s advisable to reflect on why you want to return to work. Consider both your emotional and financial needs. Are you seeking intellectual stimulation, social interaction, or a sense of purpose? Do you have specific financial goals or concerns? Understanding your motivations will help you choose the right type of work and set realistic expectations for your return to the workforce.

In addition, it’s crucial to establish a solid financial plan before going back to work. Doing so will allow you to set goals and infuse your job with more meaning. You can speak with a financial advisor to ensure your new job’s income will help you reach your goals while avoiding unwanted tax implications.

Bottom Line

Returning to work after retirement is a significant decision. Before embarking on this journey, it’s essential to thoroughly assess the potential tax implications, consider the impact on your Social Security benefits and evaluate your emotional and financial requirements.

Tips for Unretiring and Going Back to Work

  • Returning to work is a colossal shift for your calendar, daily routine, and monthly budget. It can be a lot to handle, especially if you’re juggling multiple retirement accounts and want to optimize your taxes. Fortunately, a financial advisor can create a personalized financial plan that helps you save for the future and keep your hard-earned cash in your pocket. 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.
  • Going back to work doesn’t necessarily mean taking on a dreaded commute every day. Here are the best work-from-home opportunities for retirees to help you save money and time.
  • 401(k) calculator can help you project your 401(k)’s value when you leave the workforce for the second time.

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