Can I Collect Retirement and Still Work?

Continuing to work while receiving retirement benefits is a common consideration. This approach offers financial stability and personal fulfillment, extending one’s career while accessing accumulated savings. Understanding the regulations and implications is important for informed decisions.

Understanding Social Security Earnings Limits

Social Security benefits have specific rules if an individual continues to work while collecting them. The Social Security Administration (SSA) implements an “earnings limit” that can temporarily reduce benefits for those who have not yet reached their Full Retirement Age (FRA). This limit varies depending on an individual’s age relative to their FRA.

For individuals under their Full Retirement Age for the entire year, the annual earnings limit in 2025 is $23,400. If earnings exceed this amount, the SSA will deduct $1 in benefits for every $2 earned above the limit.

A different earnings limit applies in the calendar year an individual reaches their Full Retirement Age. In 2025, this higher limit is $62,160. For earnings above this amount, the SSA deducts $1 in benefits for every $3 earned. Only earnings accumulated before the month an individual reaches their FRA count towards this limit.

Full Retirement Age depends on an individual’s birth year. For those born in 1960 or later, the FRA is 67. For individuals born between 1943 and 1959, the FRA falls between 66 and 66 years and 10 months. While benefits may be withheld due to earnings limits, these amounts are not permanently lost. Once an individual reaches their Full Retirement Age, the SSA recalculates their benefit amount to account for previously withheld benefits, potentially leading to higher monthly payments.

A special “year of retirement” rule applies in the year an individual begins receiving benefits. This rule allows the SSA to pay a full Social Security benefit for any month a person is considered retired, if their monthly earnings fall below a certain threshold. For example, in 2025, the monthly limit for those under FRA is $1,950, and for those reaching FRA in the year, it is $5,180 for months before their FRA. Once an individual reaches their Full Retirement Age, the earnings limit no longer applies, and they can earn any amount of income without their Social Security benefits being reduced.

Managing Other Retirement Accounts and Income

Continuing to work while receiving income from other retirement accounts requires understanding different rules than Social Security. Accounts like 401(k)s and Individual Retirement Accounts (IRAs) have their own regulations regarding withdrawals and contributions, influenced by continued employment.

Withdrawing from 401(k)s and IRAs is permissible without penalty once an individual reaches age 59½. Required Minimum Distributions (RMDs) become a factor later. For most individuals, RMDs begin at age 73 for traditional IRAs, SEP IRAs, and SIMPLE IRAs.

For employer-sponsored plans like 401(k)s and 403(b)s, RMD rules can differ if an individual is still employed. If an individual continues working past age 73 and does not own more than 5% of the business, they may delay RMDs from their current employer’s plan until retirement. This delay does not apply to IRAs or 401(k)s from previous employers, which are still subject to RMDs at age 73. Roth IRAs are distinct as the original account owner is not subject to RMDs during their lifetime.

Even while receiving retirement income, individuals who continue to work can contribute to their retirement accounts, subject to IRS limits and earned income requirements. For 2025, the maximum an employee can contribute to a 401(k) is $23,500. For those age 50 and older, an additional catch-up contribution of $7,500 is allowed. A higher catch-up contribution of $11,250 is available for individuals aged 60 to 63, if their plan permits.

Total contributions to a 401(k), including employee and employer contributions, are capped at $70,000 in 2025. For IRAs, the contribution limit in 2025 is $7,000 for individuals under age 50, and $8,000 for those age 50 and older. Eligibility to contribute to a Roth IRA may be limited by income levels. Pension rules are set by the former employer and remain unaffected by new employment.

Taxation of Combined Retirement and Earned Income

Combining earned income from continued work with various retirement income sources can significantly impact an individual’s overall tax liability. Understanding how these different income streams are taxed is important for effective financial planning.

A portion of Social Security benefits can become taxable at the federal level based on “combined income.” This calculation includes an individual’s adjusted gross income (AGI), any tax-exempt interest, and half of their Social Security benefits. The amount of benefits subject to taxation depends on specific income thresholds.

If an individual’s combined income is between $25,000 and $34,000, up to 50% of their Social Security benefits may be taxable. If combined income exceeds $34,000, up to 85% of benefits become taxable. For married couples filing jointly, these thresholds are $32,000 to $44,000 for up to 50% taxation, and over $44,000 for up to 85% taxation. If combined income falls below these initial thresholds ($25,000 for individuals, $32,000 for joint filers), Social Security benefits are not taxed.

Withdrawals from traditional 401(k)s, traditional IRAs, and pension payments are taxed as ordinary income in the year received. This means they are subject to the same federal income tax rates as wages from employment. When earned income from work is added to these taxable retirement distributions, total taxable income increases.

The aggregation of earned income and various retirement income streams can push an individual into a higher overall tax bracket. This can result in a greater percentage of their total income being subject to taxation. Consider how additional earnings might affect the taxation of Social Security benefits and the tax rate applied to all other taxable income sources.