Can You Collect a Pension and Still Work?

Can You Collect a Pension and Still Work?

Many individuals approaching or in retirement often wonder if they can continue working while also receiving their pension. The general answer is often yes, working while collecting a pension is possible, but this decision comes with important considerations that can affect your overall financial picture. Supplementing retirement income can provide financial security or allow for continued engagement in a field one enjoys. Understanding pension plan rules and their interaction with other benefits is crucial for making informed choices.

General Principles of Working While Receiving a Pension

The ability to work while receiving a pension depends on the specific pension plan’s design and the age of the retiree. Pension plans typically fall into two main categories: defined benefit plans and defined contribution plans. A defined benefit plan promises a specific monthly payment in retirement, often based on factors like salary and years of service. In contrast, a defined contribution plan, such as a 401(k) or 403(b), involves an accumulated account balance from which withdrawals are made, and these withdrawals are generally not affected by continued employment.

For defined benefit plans, rules can vary significantly. Some plans may have “re-employment” rules or “earnings limitations” that could impact payments if a retiree returns to work. Consulting the specific plan documents or speaking directly with a plan administrator provides the most accurate information regarding these potential limitations.

How Working Can Affect Your Pension Payments

Working after beginning to receive pension payments can directly impact the amount or continuation of those benefits, especially for defined benefit plans. One common scenario involves the suspension of benefits. This can occur if a retiree returns to work for the same employer from which they retired, particularly in public sector or union pensions. For instance, some plans may temporarily stop pension payments if the retiree exceeds specific earnings limits or returns to employment within the same pension system.

In other instances, working might lead to a reduction of pension benefits rather than a full suspension. Many pension plans establish their own earnings limits, which operate independently of Social Security earnings tests. If a retiree’s income from work surpasses these thresholds, the pension amount could be reduced by a specified formula, such as a certain percentage for every dollar earned over the limit.

Re-employment rules are particularly stringent for public sector pensions, including federal systems like FERS (Federal Employees Retirement System) or state and local government plans. These rules often mandate a break in service or impose strict limits on hours worked or earnings if a retiree returns to work for the same government entity. For example, some jurisdictions limit post-retirement public employment to a certain number of hours per calendar year, such as 1,200 hours, and may also impose earnings limitations relative to the salary of the position from which the individual retired.

Working before reaching a pension plan’s “normal retirement age” can also have different implications. Normal retirement age is the age at which a person is eligible to receive full, unreduced benefits from their pension plan. If a retiree works before this age, the plan might apply stricter earnings limitations or re-employment rules. Conversely, after reaching this age, some pension plans may allow greater flexibility with earnings without affecting benefits.

Interaction with Social Security Benefits

Working while receiving a pension also involves considering the separate rules governing Social Security benefits. The Social Security Administration (SSA) implements an “earnings test” for individuals who claim benefits before reaching their full retirement age (FRA). For those under FRA, if earnings exceed a certain limit, Social Security benefits are reduced. In 2025, if you are under full retirement age for the entire year, you can earn up to $23,400. For every $2 earned above this limit, $1 in benefits will be withheld.

A different, more generous earnings limit applies in the year an individual reaches their full retirement age. For 2025, this limit is $62,160, and Social Security will withhold $1 in benefits for every $3 earned above this amount, but only for earnings prior to the month of reaching FRA. Once an individual reaches their full retirement age, the Social Security earnings test no longer applies, allowing unlimited earnings without any reduction to benefits.

Beyond benefit reduction, earning income in retirement can also affect the taxation of Social Security benefits. A portion of Social Security benefits may become taxable if a retiree’s combined income, which includes earned income from work, exceeds certain thresholds. For a single filer, if combined income is between $25,000 and $34,000, up to 50% of Social Security benefits may be taxable. If combined income exceeds $34,000, up to 85% of benefits may be subject to federal income tax. For married couples filing jointly, these thresholds are $32,000 to $44,000 for 50% taxation, and over $44,000 for up to 85% taxation.

Specific Considerations Based on Employment Type

The nature of post-retirement employment can significantly influence how pension and Social Security rules apply. Working for a previous employer, especially the one from which the pension is received, often triggers stricter rules. Many pension plans have specific provisions that can lead to the suspension or reduction of benefits if a retiree returns to work for the same company or government agency. This contrasts with taking a new job with an unrelated employer, which typically has fewer direct implications for pension payments.

The amount of work, whether full-time or part-time, also matters. Working part-time can sometimes help retirees stay below earnings limits set by their pension plans or the Social Security Administration, thereby avoiding benefit reductions.

Earnings from self-employment are also considered when determining eligibility for Social Security benefits under the earnings test and may be factored into pension plan earnings limits. The Social Security Administration evaluates net earnings from self-employment for the earnings test. Unpaid volunteer work, however, generally does not affect pension or Social Security benefits because no income is earned.