Working in Retirement: How Does It Impact Your Retirement Accounts, Social Security, and More?


Many people choose to continue working after retirement. For some, it’s to help with monthly income and budgeting. As for others, it’s partially to enjoy staying productive in their chosen fields.

However, earning income from work after you have retired and started receiving benefits can significantly impact your Social Security, tax liabilities, Medicare coverage, and other areas of financial concern.

Due to these critical implications, it’s wise to understand the basics of how extra income earned after retirement can affect your financial planning.

Does Working in Retirement Increase Your Tax Liability?

Increased taxes can be one of the more significant threats to your retirement plans and strategy. Working after you have started receiving Social Security benefits can move you into a higher tax bracket and cause your benefits to be taxed.

The Social Security Administration uses a formula known as combined income to determine what portion, if any, of your benefits will be taxed due to earnings from continuing to work after retirement.

This formula combines your adjusted gross income, non-taxable interest, and half of your annual Social Security benefits. If your combined income falls into the highest category, up to 85% of your benefits can be taxed.

For those filing as an individual, a combined income between $25,000 and $34,000 would mean up to 50% of your benefits could be taxed. A combined income for an individual over $34,000 would mean paying tax on up to 85% of your benefits.

If filing jointly, a combined income of between $32,000 and $44,000 would mean you would be taxed on up to 50% of your benefits. Any combined income above $44,000 for a joint filing would qualify for up to 85% of benefits to be taxed.

So, as you can see, without a proper strategy, your benefits can be taxed substantially.

How Can Working in Retirement Affect Your Health Coverage?

Continuing to work in retirement is much less detrimental to your health coverage than your Social Security benefits. However, Medicare and Medigap have specific time periods for enrollment. If you miss them, you may incur late-enrollment penalties. Generally speaking, people become eligible for Medicare at age 65. That being said, you may be able to enroll after 65 should you have employer health coverage for a time after you turn 65.

With health costs being one of the primary expenses in retirement, many people choose to keep working due to group health insurance as an employer benefit. You may choose to keep working for this reason if you are under 65. For those who are 65 and beyond, it’s good to ask your HR department about how employer-provided group health insurance works with Medicare.

You will want to keep an eye on Medicare enrollment periods and rules if you have health coverage in retirement from an older employer or if you have COBRA coverage. These kinds of coverage don’t allow you to delay enrollment in Medicare past 65. Late enrollment in Medicare may slap you with penalties, and you may also face coverage gaps.

Keep in mind that if you have an HSA, you can no longer contribute to it after you have enrolled in Medicare.

Given all of your options and their intricacies, it’s wise to consult with an expert to make sure you have met all the requirements for a smooth transition into retirement healthcare coverage options.

Will Continuing to Work Affect Your Required Minimum Distributions (RMDs) And Contributions?

Generally, no. You will still be required to meet your RMDs in your 70s to avoid a tax penalty. This applies to most retirement accounts such as 401(k)s and IRAs. The age at which you start required minimum distributions will depend on your age now.

If you were born on June 30, 1949 or earlier, you have already started RMDs at 70.5 and will have to continue taking them. For those born on July 1, 1949, through and including December 31, 1950, RMDs would have started at age 72. If you were born on January 1, 1951, through and including December 31, 1959, the age for starting your RMDs is 73. For those born on January 1, 1960 or later, an adjusted age for starting RMDs at 75 will take effect in 2033, unless Congress changes this age.

If you are working, you can often delay these RMD requirements if you meet certain guidelines. These include owning less than 5% of the company you work for.

When it comes to contributions, you can still contribute to your new employer’s retirement plan, and it’s generally wise to do so. Since you will most likely be over 50, you can contribute the maximum catch-up limit to your accounts.

If your employer matches contributions, this makes it even more appealing. An added benefit here is that contributing to your company’s retirement plan lowers your income.

If you are over certain limits when it comes to Social Security, this reduction in income can help bring you below certain thresholds and lessen the amount of taxes paid on benefits.

Does Working in Retirement Do Anything to Your Pension?

The rules for pensions vary from employer to employer. Check with your human resources department at your new workplace and your plan provider to see if getting back to work in retirement might impact your pension payouts or your benefits.

You may want to check on this especially if you are going back to work at an old place of employment.

How Else Can I Continue to Build My Savings During Retirement?

Any of your retirement accounts, such as IRAs, can continue to increase in value during your work in retirement. You are still not taxed on these until you finally withdraw the money when needed.

Any type of non-retirement brokerage account will be taxed annually in the year the gains were realized. These are generally taxed as capital gains.

Annuities are also an option to build savings after retirement, especially for a guaranteed income stream later on. Annuities funded with pre-tax money are fully taxed as income when payments are made to you. These are referred to as qualified annuities.

Annuities funded by after-tax dollars, such as from a bank account or a home sale, are considered non-qualified annuities. With these, the payments can be tax-free, but there is a complex set of requirements that must be met.

How non-qualified annuity payments are taxed is calculated by something called the exclusion ratio. This calculation is rather involved, but it involves the principal of the annuity, how long it has existed, and how much interest was earned.

The exclusion ratio also takes into consideration the life expectancy of the person holding the annuity.

Overall, this can become pretty involved. If you are dealing with an annuity as part of your retirement assets, it’s best to consult with a tax professional to make sure you take full advantage of the tax benefits and avoid any tax pitfalls.

Final Thoughts On Working In Retirement

Working after retirement does have some benefits. For some people, it might even be a necessity. But the added income from continuing to work does trigger some rather large tax implications that are prudent to be considered.

If you plan on going back to work after retiring, it’s always wise to consult with a tax professional. With a little bit of expert guidance, you can make a smooth transition back into the workforce while avoiding undue taxes and penalties.

Are you looking for a financial professional to help you consider these scenarios if you do continue working in retirement? It’s good to consider working with an independent financial professional who guides in your best interest. For convenience, many independent financial professionals are available at to assist with your personal questions.

Get started by using our “Find a Financial Professional” section to connect with someone directly. You can request an initial appointment to discuss your situation and explore a potential working relationship. Should you need a personal referral, call us at 877.476.9723.

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