Can You Work While Retired? How It Affects Your Finances

Working during retirement is a common consideration, whether for financial necessity or a desire to remain engaged. Earning income after a primary career is often viable, but it introduces financial complexities. Understanding how earned income impacts benefits and accounts is crucial.

Rules for Working While Receiving Social Security

The Social Security Administration (SSA) imposes annual earnings limits for individuals who have not yet reached their full retirement age (FRA). For 2025, if an individual is under their FRA for the entire year, the earnings limit is $23,400. For every $2 earned above this limit, $1 in benefits will be withheld.

A different earnings limit applies in the year an individual reaches their full retirement age. For 2025, this limit is $62,160. The SSA deducts $1 in benefits for every $3 earned above this limit, but only counts earnings up to the month before the individual’s FRA. Once an individual reaches their full retirement age, there is no limit on how much they can earn, and benefits will not be reduced due to work.

Benefits withheld due to exceeding earnings limits are not permanently lost. The SSA recalculates benefits at FRA, providing credit for withheld months and increasing future monthly payments. Individuals receiving Social Security benefits must accurately report earnings to the SSA.

The SSA considers an individual retired if earnings are below a monthly threshold and they are not performing substantial self-employment services. For 2025, this monthly threshold is $1,950 for those under FRA. In the year of reaching FRA, the monthly threshold before the month of FRA is $5,180.

Tax Considerations for Working Retirees

Income from wages or self-employment remains subject to federal income taxes, similar to pre-retirement earnings. The progressive nature of the federal income tax system means that higher overall income, combining work earnings with retirement benefits and withdrawals, can push an individual into a higher tax bracket. For 2025, federal income tax rates range from 10% to 37%.

Working retirees also face taxation of Social Security benefits. The Internal Revenue Service (IRS) uses “provisional income” to determine if a portion of Social Security benefits becomes taxable. Provisional income includes adjusted gross income, tax-exempt interest, and half of Social Security benefits. If provisional income exceeds specific thresholds, up to 50% or 85% of Social Security benefits may be subject to federal income tax.

For 2025, single filers with provisional income between $25,000 and $34,000 may have up to 50% of their Social Security benefits taxed. For those exceeding $34,000, up to 85% of benefits can be taxable. For married couples filing jointly, the thresholds are $32,000 for up to 50% taxation and $44,000 for up to 85% taxation. These provisional income thresholds are not adjusted for inflation, meaning more retirees may find their benefits subject to taxation over time as their income increases.

Individuals engaged in self-employment during retirement also incur self-employment taxes. This tax covers Social Security and Medicare contributions, totaling 15.3% of net earnings from self-employment. This 15.3% rate comprises 12.4% for Social Security and 2.9% for Medicare. For 2025, the Social Security portion (12.4%) applies to the first $176,100 of net earnings, while the Medicare portion (2.9%) applies to all net earnings. Additionally, an extra 0.9% Medicare tax applies to earnings exceeding $200,000 for single filers or $250,000 for married couples filing jointly.

Working and Your Retirement Accounts

Individuals with earned income may still contribute to Traditional or Roth IRAs, provided they meet income eligibility requirements. For 2025, the annual contribution limit for IRAs is $7,000, with an additional $1,000 catch-up contribution for those age 50 and older, bringing the total to $8,000. This earned income must be taxable compensation, such as wages or self-employment income, to qualify for contributions.

Roth IRA contributions have modified adjusted gross income (MAGI) phase-out ranges. For 2025, single filers can make full Roth IRA contributions if their MAGI is less than $150,000, with reduced contributions up to $165,000. For married couples filing jointly, full contributions are allowed if MAGI is less than $236,000, with a phase-out up to $246,000. There are no age limits for contributing to a Roth IRA, allowing working retirees to continue saving in these tax-advantaged accounts.

Required Minimum Distributions (RMDs) from retirement accounts have specific rules when an individual continues working. If still employed by the company sponsoring a 401(k) or similar plan, and not a 5% owner, RMDs from that specific plan can typically be delayed until retirement from that employer. This is known as the “still working” exception. However, RMDs from IRAs or 401(k)s from previous employers generally must commence at the usual age, currently 73, regardless of continued employment elsewhere.

Working and Medicare Coverage

Individuals turning 65 who have access to employer-sponsored health insurance often face a choice about when to enroll in Medicare Part B. If the employer has 20 or more employees, the employer’s group health plan typically pays primary, and Medicare pays secondary. In such cases, many individuals choose to delay Part B enrollment without penalty, as their employer coverage is considered “creditable.”

Upon leaving employment or when employer coverage ends, individuals qualify for a Special Enrollment Period (SEP) for Medicare Part B. This SEP allows enrollment without late enrollment penalties and generally lasts for eight months after employment or coverage ceases. However, if the employer has fewer than 20 employees, Medicare usually pays primary, and the employer plan secondary. In this scenario, enrolling in Medicare Parts A and B at age 65 is advisable.

Higher income from working can also lead to increased Medicare premiums through the Income-Related Monthly Adjustment Amount (IRMAA). IRMAA is an additional charge added to Medicare Part B and Part D premiums for beneficiaries whose modified adjusted gross income (MAGI) exceeds certain thresholds. For 2025, IRMAA applies if an individual’s 2023 MAGI was above $106,000 for single filers or $212,000 for married couples filing jointly. These surcharges are determined based on tax returns from two years prior, meaning current work income can impact future Medicare costs.