When You Retire, Can You Still Work?

Many individuals envision retirement as a complete cessation of work, but for a growing number of people, it represents a new phase that includes continued employment. This approach allows retirees to remain engaged, supplement their income, or pursue new interests. Working in retirement is not an all-or-nothing decision, and the specifics of how it impacts various aspects of a retiree’s financial life are important to understand.

Working and Social Security Benefits

Working while receiving Social Security benefits can affect the amount, especially if you have not reached your Full Retirement Age (FRA). The Social Security Administration (SSA) applies an earnings limit. For 2025, this is $23,400 if you are under your FRA for the entire year.

If your earnings exceed this limit, Social Security benefits are reduced. For every $2 earned over the annual limit, $1 is deducted. For example, earning $25,000 in 2025 (which is $1,600 over the $23,400 limit) would reduce your annual benefit by $800.

Rules differ in the year you reach your FRA. For 2025, the earnings limit before reaching FRA is $62,160, with a $1 reduction for every $3 earned above it. Only earnings before your FRA month count. Once you reach your FRA, the earnings limit no longer applies, allowing unlimited earnings without benefit reduction.

Benefits withheld due to exceeding the earnings limit are not lost. When you reach your FRA, the SSA recalculates your benefit amount, resulting in higher monthly payments. This adjustment happens automatically after earnings are reported, with increases applied retroactively.

Only wages or net earnings from self-employment count toward the earnings limit. Income sources like pensions, annuities, and investment earnings do not. This helps retirees plan income streams to minimize benefit reductions.

Working and Other Retirement Income Sources

Working in retirement interacts differently with other income sources beyond Social Security. The impact depends on the retirement plan type and its rules.

Returning to work can affect payments from traditional defined benefit pension plans. Some plans, especially those sponsored by a former employer, may suspend or reduce benefits if a retiree returns to work for the same employer or industry. Reviewing the plan document or contacting the administrator is necessary.

Defined contribution plans (e.g., 401(k)s, 403(b)s) are not impacted by earned income; withdrawals are not reduced. Continued employment may allow new contributions if eligible. If still working for the plan sponsor past age 73, you may delay Required Minimum Distributions (RMDs) from that plan until retirement.

For Individual Retirement Accounts (IRAs), earned income does not reduce withdrawals; funds can be withdrawn from traditional or Roth IRAs. However, earned income can influence eligibility for new, tax-deductible contributions to a traditional IRA due to income and age restrictions. Roth IRA eligibility subject to income limitations.

Taxation of Retirement Earnings

Earning income in retirement introduces several tax considerations. These can affect a retiree’s financial picture.

Earned income, from wages or self-employment, is subject to federal and state income taxes. This income is taxed similarly to income earned during your primary working career. Tax rates depend on your total taxable income and filing status.

Earned income is also subject to payroll taxes. As an employee, your wages are subject to Social Security and Medicare taxes (FICA). If self-employed, you pay self-employment taxes, covering Social Security and Medicare contributions.

Earning income in retirement can make Social Security benefits taxable. If “provisional income” exceeds certain thresholds, a portion of benefits may become taxable. Provisional income includes half of Social Security benefits, adjusted gross income, and tax-exempt interest. For single filers in 2025, up to 85% of benefits may be taxable depending on income. Joint filers have different thresholds.

A higher Adjusted Gross Income (AGI) from earned income can affect eligibility for tax deductions and credits. Many tax benefits have income limitations or phase-outs. As your AGI increases, you may be eligible for fewer deductions or credits, or their value may be reduced.

Healthcare Coverage While Working in Retirement

Working in retirement has implications for healthcare coverage, particularly Medicare. Medicare eligibility is based on age, generally starting at 65, or certain disabilities, not retirement status.

If you work past age 65 with employer group health coverage, you may delay Medicare Part B enrollment. This is permissible without penalty if the employer has 20 or more employees. Confirm the employer plan is “creditable coverage” to avoid late enrollment penalties.

When employment or employer coverage ends, a Special Enrollment Period (SEP) for Medicare Part B becomes available. This SEP allows enrollment without penalty for a set period, typically eight months, after coverage ends. This helps avoid gaps and late enrollment penalties.

If you have both employer-sponsored health coverage and Medicare, the plans coordinate benefits. Which plan pays first depends on employer size and coverage type. If the employer has 20 or more employees, the employer plan typically pays first, and Medicare second. If fewer than 20 employees, Medicare usually pays first.

Higher income from working in retirement can affect Medicare premiums. Part B and Part D premiums may be subject to an Income-Related Monthly Adjustment Amount (IRMAA). If your modified adjusted gross income exceeds certain thresholds, you may pay a higher premium. IRMAA income thresholds are adjusted annually.