How Much Can You Earn After Retirement?

Many individuals consider earning income during retirement, whether through part-time work, consulting, or new ventures. This can provide financial flexibility, supplement savings, and maintain a sense of purpose. Understanding how additional income interacts with Social Security benefits and tax obligations is important for informed retirement planning.

Social Security Earnings Test

The Social Security Administration implements an earnings test that can affect benefit payments for individuals who work and receive Social Security benefits before reaching their full retirement age. This test reduces benefits based on how much an individual earns above specific annual limits. The reduction rules depend on whether the individual is before their full retirement age or in the year they reach it.

For those younger than their full retirement age for the entire year, Social Security deducts $1 from benefit payments for every $2 earned above the annual earnings limit. This limit is adjusted annually. For example, in 2024, this annual limit is $22,320.

A different set of rules applies in the year an individual reaches their full retirement age. Social Security deducts $1 from benefit payments for every $3 earned above a higher annual earnings limit, set at $59,520 for 2024. This specific rule applies only to earnings in the months before the individual reaches their full retirement age.

Once an individual reaches their full retirement age, the Social Security earnings test no longer applies. Benefits previously withheld due to the earnings test are not permanently lost; Social Security recalculates the benefit amount at full retirement age to account for them, potentially leading to a higher monthly payment.

The full retirement age varies based on birth year. For those born in 1943 through 1954, it is 66. It gradually increases for those born later, reaching age 67 for individuals born in 1960 or later. Understanding your specific full retirement age is important for anticipating how the earnings test might apply.

Income Included in the Earnings Test

The Social Security Administration considers specific types of income when applying the earnings test, focusing on “earned income.” This category includes wages received from an employer for services performed. For example, gross wages from a part-time job count towards the earnings limit.

Net earnings from self-employment also fall under earned income for the earnings test. If a retiree starts a small business or works as an independent contractor, their profits after deducting allowable business expenses are included. The Social Security Administration uses the net profit figure reported for self-employment tax purposes.

Conversely, many types of income do not count towards the Social Security earnings test. These include unearned income not directly tied to current work. Examples are pensions from previous employment, government retirement benefits, and annuity payments.

Investment income, such as dividends from stocks, interest earned on savings accounts or bonds, and capital gains from selling assets, is excluded. Distributions from individual retirement accounts (IRAs) or 401(k) plans are not considered earned income. Other excluded income includes rental income (unless from a business) and income from certain trusts.

Tax Implications of Earning in Retirement

Earning income in retirement can introduce various tax consequences beyond the Social Security earnings test. Any wages or net self-employment income earned is subject to federal income tax. This income will be added to other taxable income sources, potentially placing the individual in a higher income tax bracket.

Many states also impose income taxes, and earned income in retirement is subject to these. The specific rates and rules vary significantly by state, and some states do not tax retirement income or earned income up to certain thresholds. Retirees should consult their state’s tax regulations to understand these potential liabilities.

Earning income in retirement can make a portion of Social Security benefits subject to federal income tax. This taxation occurs when an individual’s “combined income” exceeds specific thresholds. Combined income is calculated as adjusted gross income (AGI) plus non-taxable interest plus one-half of the Social Security benefits received.

If an individual’s combined income is between $25,000 and $34,000 for a single filer, or between $32,000 and $44,000 for those filing jointly, up to 50% of their Social Security benefits are taxable. Should combined income exceed $34,000 for single filers or $44,000 for joint filers, up to 85% of Social Security benefits are taxable. These thresholds are not adjusted for inflation, which means more retirees may find their benefits taxed over time.

Higher earned income can also affect Medicare Part B and Part D premiums through the Income-Related Monthly Adjustment Amount (IRMAA). IRMAA is an additional amount paid for Medicare Part B and Part D premiums if modified adjusted gross income (MAGI) exceeds certain thresholds. These thresholds are based on income from two years prior.

For example, for 2025 Medicare premiums, the income thresholds are based on 2023 tax returns. If a single individual’s MAGI was above $109,000 in 2023, or for a married couple filing jointly, above $218,000, they would pay higher Part B and Part D premiums in 2025. These surcharges can add hundreds or thousands of dollars annually to Medicare costs.