If I Retire at 63 Can I Still Work?

Retiring at age 63 while continuing to work involves specific financial considerations. Understanding how earned income affects retirement benefits, taxation, and healthcare is important for informed decisions. This includes knowing the impact on Social Security, tax obligations, health insurance, and personal retirement savings. A clear understanding helps individuals manage their finances during this period.

Social Security Benefit Adjustments

Working while receiving Social Security benefits before your Full Retirement Age (FRA) can lead to adjustments in your monthly payments. Full Retirement Age is typically 67 for individuals born in 1960 or later. For those born between 1955 and 1959, it falls between 66 and 66 years and 10 months. Claiming benefits at age 63 means you are below your FRA, making your benefits subject to an earnings limit.

For 2025, if you are under your FRA for the entire year, the Social Security Administration (SSA) withholds $1 in benefits for every $2 earned above an annual limit of $23,400. If you reach your FRA in 2025, a different limit of $62,160 applies to earnings in the months before you reach your FRA, with $1 in benefits withheld for every $3 earned above this threshold. Once you reach your Full Retirement Age, there is no limit on how much you can earn without affecting your Social Security benefits.

These are benefit adjustments, not permanent penalties. Your future monthly benefit amount will be recalculated upward once you reach your Full Retirement Age to account for previously withheld benefits. If your earnings in a year you work while receiving benefits are higher than one of your previous 35 highest earning years, the SSA will automatically recompute your benefit. This recomputation can result in a higher monthly benefit amount, as your Social Security benefit is based on your 35 highest earning years.

Income Taxation of Earnings and Benefits

Continuing to work at age 63 means your earned income will be subject to federal income tax, like any other employment income. The U.S. has a progressive tax system, with federal income tax rates ranging from 10% to 37%. Your specific tax bracket depends on your total taxable income and filing status.

A portion of your Social Security benefits may also become taxable depending on your overall income, referred to as “provisional income.” Provisional income is calculated by adding your adjusted gross income (AGI), any tax-exempt interest, and one-half of your Social Security benefits. The amount of your Social Security benefits subject to federal income tax is determined by specific provisional income thresholds, which are not adjusted for inflation.

For single filers, if your provisional income is between $25,000 and $34,000, up to 50% of your Social Security benefits may be taxable. If it exceeds $34,000, up to 85% of your benefits may be subject to taxation.

For those filing as married filing jointly, the thresholds are higher. If your provisional income is between $32,000 and $44,000, up to 50% of your benefits may be taxable. If it exceeds $44,000, up to 85% may be taxable. The taxation of Social Security benefits is separate from the Social Security earnings limit rules.

Health Insurance Options Before Medicare Eligibility

Securing health insurance coverage is a key consideration for retiring at age 63, as Medicare eligibility generally begins at age 65. This creates a two-year gap requiring alternative health insurance. Planning for this period helps avoid coverage lapses and manage healthcare costs.

If you continue to work, even part-time, check if your employer offers health insurance benefits to part-time employees. This is often the most cost-effective option if available. COBRA allows you to continue health coverage from a previous employer’s plan for a limited period, typically 18 to 36 months. While COBRA provides continuity, it can be expensive as you will likely pay the full premium, including the employer’s portion.

The Health Insurance Marketplace, established under the Affordable Care Act (ACA), offers another option for individuals under 65. You can enroll in a plan through the Marketplace and may be eligible for income-based subsidies to reduce premium costs. Compare plans to understand coverage details, deductibles, and out-of-pocket maximums to select the most suitable plan.

Impact on Private Retirement Accounts and Pensions

Continuing to work at age 63 can influence how you manage private retirement accounts, such as 401(k)s and Individual Retirement Arrangements (IRAs). Withdrawals from these accounts before age 59½ are generally subject to a 10% early withdrawal penalty, in addition to being taxed as ordinary income. However, continuing to work may reduce your immediate need to draw from these savings, allowing them more time to grow.

Specific exceptions to the 10% early withdrawal penalty may apply. For 401(k)s, the “Rule of 55” allows penalty-free withdrawals if you separate from service with your employer at age 55 or later. This exception generally applies only to the plan of the employer you left. For both 401(k)s and IRAs, other exceptions exist for specific circumstances. These include unreimbursed medical expenses exceeding a certain percentage of your adjusted gross income, distributions due to disability, or through a series of substantially equal periodic payments (SEPPs).

The impact of continued work on pensions depends on your specific plan’s terms. Some pension plans may have rules about earning income while receiving benefits. Consult your pension plan administrator to understand how new earned income might affect your pension distributions or eligibility. These private accounts and pensions operate distinctly from Social Security, governed by different regulations and plan documents.