How Much Can I Earn After Retirement?

Earning income after formal retirement is a common choice for many individuals, driven by financial goals, a desire for continued engagement, or personal fulfillment. This period can still involve active participation in the workforce. Understanding how earned income interacts with benefits and taxes is important. Navigating the rules and regulations surrounding post-retirement earnings helps in making informed financial decisions.

Social Security Earnings Limits

When individuals begin receiving Social Security retirement benefits before reaching their full retirement age (FRA), their work earnings can affect the amount of benefits received. FRA is an age set by the Social Security Administration (SSA) that varies by birth year. For those under their FRA for the entire year, the SSA applies an annual earnings limit. In 2025, this limit is $23,400. If earnings exceed this, $1 in benefits is withheld for every $2 earned over the limit.

A different earnings limit applies in the year an individual reaches their FRA. For 2025, this higher limit is $62,160. In this year, $1 in benefits is deducted for every $3 earned above this limit. This limit applies only to earnings received in months before the individual’s birth month, when they officially reach their FRA. Earnings from the month of reaching FRA and onward do not count towards this limit.

Once an individual reaches their FRA, Social Security earnings limits no longer apply. A person can earn any amount of income from work without affecting their Social Security benefit payments. The earnings limits apply only to “earned income,” which includes wages from employment or net earnings from self-employment.

The earnings limits do not apply to “unearned income.” This category includes pensions, annuities, investment income, interest, dividends, and capital gains. Any Social Security benefits withheld due to exceeding the earnings limit are not permanently lost; they are added back to the individual’s benefit amount once they reach their FRA through a re-calculation process.

Post-Retirement Income Sources

Understanding the distinction between earned and unearned income is important when evaluating a retiree’s financial landscape. Earned income primarily consists of wages from a job or net earnings from self-employment. Unearned income includes distributions from private pensions, annuities, withdrawals from Individual Retirement Accounts (IRAs) or 401(k) plans, investment income like interest and dividends, capital gains from asset sales, and rental income. Social Security benefits are also considered unearned income.

Private pensions generally do not impose earnings limits, allowing retirees to work without affecting their pension payments. Some older defined benefit pension plans may have specific provisions if an individual returns to work for the same employer. Reviewing specific plan documents is advisable to understand any such rules. Most modern defined contribution plans, such as 401(k)s, do not link withdrawals to ongoing employment.

A higher Modified Adjusted Gross Income (MAGI), which can include earned income from post-retirement work, can influence a retiree’s financial obligations, such as Medicare premiums. The Income-Related Monthly Adjustment Amount (IRMAA) is an additional amount some higher-income Medicare beneficiaries must pay for Medicare Part B and Part D coverage. This surcharge is determined by the MAGI reported on an individual’s tax return from two years prior. For example, IRMAA for 2025 is based on income reported on 2023 tax returns.

For 2025, individuals whose 2023 MAGI exceeded $106,000, or married couples filing jointly with a MAGI over $212,000, may be subject to IRMAA. Higher MAGI results in a greater IRMAA surcharge, as several income brackets determine the adjustment amount. IRMAA considers all income sources that contribute to MAGI, not just earned income.

Taxation of Retirement Earnings

Earning income after retirement carries various tax implications, affecting earned income and potentially other retirement income sources. Earned income, whether from wages or self-employment, is subject to federal income tax. This income contributes to an individual’s overall taxable income, which is then subject to progressive federal income tax rates and brackets. Standard deductions and applicable tax credits can help reduce the amount of income subject to federal taxation.

Beyond federal taxes, earned income may also be subject to state income tax, depending on the individual’s state of residence. Each state has its own tax laws and rates, so individuals should check their state’s Department of Revenue for applicable regulations.

Earning income in retirement can significantly impact the taxation of Social Security benefits. A portion of Social Security benefits can become taxable at the federal level if an individual’s “combined income” exceeds specific thresholds. Combined income is calculated by taking an individual’s adjusted gross income (AGI), adding any nontaxable interest, and then adding one-half of their annual Social Security benefits.

For 2025, if an individual’s combined income is between $25,000 and $34,000, up to 50% of their Social Security benefits may be subject to federal income tax. If their combined income exceeds $34,000, up to 85% of their Social Security benefits may be taxed. For married couples filing jointly, these thresholds are higher: up to 50% of benefits may be taxed if combined income is between $32,000 and $44,000, and up to 85% if combined income exceeds $44,000. These combined income thresholds are fixed and are not adjusted for inflation.

If a retiree’s earned income comes from self-employment, they are also responsible for self-employment taxes. This tax covers Social Security and Medicare contributions. The self-employment tax rate is 15.3%, consisting of a 12.4% component for Social Security and a 2.9% component for Medicare.

For 2025, the 12.4% Social Security portion applies only to net earnings up to $176,100. The 2.9% Medicare portion applies to all net earnings from self-employment, without any income cap. An additional Medicare tax of 0.9% may apply to net earnings from self-employment exceeding $200,000 for single filers or $250,000 for those married filing jointly.