Many retirees are considering a return to the workforce, whether it’s for extra income, personal fulfillment, or both. But before you jump back in, it’s important to understand how working again could impact your Social Security benefits, taxes, and retirement savings. Here’s a breakdown of what you need to know.
How Social Security Benefits Are Affected
If you’re under your Full Retirement Age (FRA)—which is 67 for people born in 1960 or later—earning too much money can reduce your Social Security benefits. In 2025, the earnings limit is set at $23,400. If you earn more than that, the Social Security Administration will withhold $1 in benefits for every $2 you earn over the limit.
For example, let’s say you earn $30,000 in a year. That’s $6,600 over the limit, which would reduce your Social Security by $3,300. But don’t worry—this isn’t permanent. Once you hit your Full Retirement Age, the SSA recalculates your benefits and you’ll get credit for the amounts they previously withheld.
Once you reach your FRA, there’s no limit to how much you can earn without affecting your benefits.
The Tax Consequences of Going Back to Work
Earning more money could also affect your taxes, particularly how much of your Social Security benefits are taxable. If your total income—including half of your Social Security benefits and any other earnings—goes above certain thresholds, up to 85% of your Social Security benefits could be subject to federal income tax.
This is something to keep in mind as you decide how much to work and earn during retirement. Working too much could push you into a higher tax bracket, potentially eating into your retirement income.
Can You Keep Contributing to a 401(k)?
Yes! Going back to work can give you the opportunity to continue growing your retirement nest egg. In 2025, the contribution limit for individuals aged 50 or older is $23,500, and if you qualify for a catch-up contribution, you could add an extra $7,500 or more, depending on your age.
By continuing to contribute to your 401(k), you could extend your savings and provide yourself with more financial security down the road. Just be aware that if you’re already taking 401(k) withdrawals, you don’t have to stop them when you start working again—but those withdrawals will count as taxable income.
Don’t Forget About Medicare
If you’re 65 or older and have Medicare, returning to work could introduce some complexities with your healthcare coverage. Many employers offer health insurance, and you’ll need to figure out how this will coordinate with your current Medicare plan. In some cases, your employer’s plan will be primary, with Medicare serving as secondary coverage. Make sure to review your options so you don’t end up paying for coverage you don’t need or face unexpected costs.
What You Should Do Before Returning to Work
- Evaluate Your Benefits: Look closely at how much you’ll earn and how it will affect your Social Security benefits, taxes, and overall retirement savings.
- Consider Long-Term Impacts: If you plan to work for a few years, continued 401(k) contributions could give you a stronger financial cushion.
- Seek Professional Advice: A financial advisor or tax expert can help you create a strategy that maximizes your income without sacrificing your benefits.
Returning to work after retirement can be rewarding, both financially and personally, but it requires careful planning. Make sure you understand the trade-offs so that your golden years stay on track.
