Working in Retirement: What You Need to Know About Taxes, Social Security, and Medicare
Have you ever thought about working during your retirement years? Whether it’s out of financial necessity or simply to stay active and engaged, working in retirement has become an increasingly common choice. Many retirees are discovering that part-time work not only supplements their income but also provides a renewed sense of purpose, social engagement, and mental stimulation. Part-time opportunities allow you to apply your extensive experience in a flexible setting that suits your lifestyle. Whether you're looking to consult, mentor, or simply stay active, the modern workforce offers a variety of roles that value the skills and reliability of experienced professionals.
For those interested in exploring these opportunities, there are several resources available to help guide your search. Websites such as AARP’s job board, Retired Brains, and SeniorJobBank specialize in listings tailored for retirees. In addition, platforms like FlexJobs and Indeed offer search filters for part-time, remote and flexible positions, making it easier to find roles that align with your interests and schedule. These resources, combined with local networking groups and community centers, can serve as a great starting point for finding meaningful work in retirement.
But while the idea may sound appealing, it comes with unique considerations that can impact your finances, health care costs, and even your lifestyle. Before you commit to a part-time job, consulting gig, or passion project, there are a few things you should know about taxes, Social Security, and Medicare.
Why Work in Retirement?
The reasons for working in retirement are as varied as retirees themselves. For some, it’s about staying connected, keeping their minds sharp, or pursuing a lifelong dream, such as starting a business. Others may want to supplement their income to cover rising costs, such as health care or housing. Then there are those who simply enjoy the structure and sense of purpose that work brings.
These days, retirees have a wide range of part-time opportunities that offer flexibility and extra income. Many turn to consulting or freelance work to leverage their professional expertise, while others enjoy tutoring or teaching, either in classrooms or online. Administrative support roles and customer service positions provide structured environments, and virtual assistant work allows for the convenience of working from home without a lot of responsibilities. Additionally, roles like rideshare or delivery driving, seasonal jobs in retail or hospitality, and positions such as museum docents can offer both social engagement and manageable hours.
Retirees can turn their hobbies and interests into money-making opportunities by offering products or services based on their passions. For example, artists can sell their artwork or offer online art classes, while gardeners can create and sell handmade products or provide landscaping services. Those who enjoy cooking might consider catering, food blogging, writing a cookbook or teaching cooking classes and writers can monetize their passion through freelance writing or self-publishing. By combining your skills with a bit of entrepreneurial spirit, you can create fulfilling ways to earn extra income while doing what you love. Retirement isn’t just a time to get a good rocking chair on the porch. These days, you can turn your hobby, whether it's dancing, crafting, photography, or fishing into income opportunities by selling products online, publishing YouTube videos, hosting classes including virtual classes, or offering freelance services that leverage your unique skills.
We have a client who turned his hobby as a magician into conducting shows at kids parties and even teaches others the joy of entertainment through magic. Another client is writing a book on business leadership, while another posts garden vlogs online and joined the YouTube Partner Program and sponsors content deals with through online garden stores like seed suppliers. We have plenty of clients who consult in retirement, work part-time at golf shops or nurseries and who have found ways to turn their interests into side jobs.
Whatever your motivation, it’s important to understand how working in retirement could affect your overall financial plan. For instance, will your earnings push you into a higher tax bracket? Could they reduce your Social Security benefits? How might your Medicare premiums be impacted? Let’s explore these questions and more.
Taxes on Social Security Benefits
One of the first questions is, “Will the money I earn from a job impact my total retirement picture?” The answer depends on your total income and the types of income you receive.
If you’re working while collecting income from Social Security, you need to be aware of how Social Security is taxed because those earnings could interact with your total picture. For instance, if your combined income (adjusted gross income, nontaxable interest, and half of your Social Security benefits) exceeds certain thresholds, up to 85 percent of your Social Security benefits could become taxable.
The thresholds for taxation on Social Security benefits are as follows:
- If you file as a single taxpayer and your income is above $25,000 up to 50 percent of your Social Security benefits may be subject to taxation; and if your income exceeds $34,000, up to 85 percent of your benefits could be subject to taxation.
- For married couples filing jointly, the thresholds are $32,000 and $44,000, respectively, with the same percentages applied.
For example, let’s say Jennifer is a single filer and has a Social Security benefit of $23,000 a year and a small pension of $6,000. Her total income is $31,000, which means 50% of her Social Security benefits are subject to tax. ($12,000 half of Social Security + $6,000 pension = $18,000).
She is offered a part time job at a local boutique. While she loves the idea of engaging with her community and would certainly benefit from some extra pocket change, she is wondering how much she can earn to prevent more of her Social Security benefits being subject to taxes?
With her current taxable income of $18,000, Jennifer can earn an additional: $7,000 for the year ($25,000 - $18,000 = $7,000) before she will have to pay taxes on 85% of her benefits.
It’s important to note that these thresholds are not indexed for inflation, which means more and more retirees are affected each year. If you’re working part-time and/or withdrawing from retirement accounts while collecting Social Security, your combined income could easily push you over these limits. Proactive tax planning, such as carefully managing withdrawals, leveraging Roth accounts, or timing income strategically, can help minimize the impact of taxes on your Social Security benefits. Consulting with a financial advisor or tax professional is key to optimizing your retirement income and keeping more of your benefits in your pocket.
Take Bill, a retired teacher who started consulting part-time to stay busy. In his first year of consulting, he earned $20,000. Combined with his Social Security benefits and distributions from his IRA, Bill’s income pushed over the threshold, making 85% of his Social Security taxable. While he didn’t regret his decision to work, the unexpected tax hit reminded him of the importance of planning ahead.
Will Working Reduce Your Social Security Benefits?
Another common concern is how working in retirement affects Social Security. If you start collecting benefits before reaching full retirement age (FRA) and continue working, your benefits may be reduced if your earnings exceed certain limits. For example, in 2025 you can earn up to $21,240 annually without any reduction; for every $2 earned over this limit, $1 is withheld from your benefits. However, these withheld benefits are not lost permanently—once you reach FRA, Social Security recalculates your benefits, crediting you for the months during which benefits were withheld, thereby increasing your monthly payment going forward. Additionally, income from part-time work (and the associated FICA taxes) continues to contribute to your lifetime earnings record, potentially boosting your future benefit.
Consider Tom, a 64-year-old engineer who began receiving Social Security at 62. After returning to work part-time and earning $30,000 annually, he exceeded the earnings limit by $8,760, resulting in $4,380 being withheld from his benefits for the year. Although Tom accepted this trade-off, he later realized that delaying his benefits until FRA might have maximized his overall payout. This example underscores the importance of timing when it comes to claiming Social Security and deciding whether to work in retirement—not only do immediate benefits matter, but so does their long-term impact on your financial picture.
The Impact on Medicare Premiums
Working in retirement can also affect your Medicare premiums, particularly if your income is high enough to trigger the Income-Related Monthly Adjustment Amount (IRMAA). There is a two-year look back for IRMAA which means for 2025, individuals with a 2023 modified adjusted gross income (MAGI) above $106,000 or married couples with a MAGI above $212,000, will pay higher premiums for Medicare Parts B and D.
For retirees who decide to work and earn a substantial income, this surcharge can be an unpleasant surprise. Consider Robert and Susan, a retired couple who decided to start a small business together. Their additional income pushed their MAGI above the IRMAA threshold, increasing their Medicare premiums by thousands of dollars each month. While they enjoyed the extra income from their business, they had to adjust their budget to account for the higher health care costs.
This scenario highlights why it’s important to consider how working in retirement might impact not only your income but also your expenses. Understanding the IRMAA thresholds and planning your earnings accordingly can help you avoid surprises.
Balancing RMDs and Employment Income
If you’re working past age 73 and have retirement accounts like a traditional IRA or a 401(k), you’re generally required to begin taking required minimum distributions (RMDs). Even if you’re earning a paycheck, the IRS mandates that you withdraw a portion of your retirement savings each year, and these withdrawals are added to your taxable income.
There is an exception if you’re still employed by the company sponsoring your 401(k) and you are not a 5% owner, you may be eligible for the "still working" exception, which allows you to delay taking RMDs from that plan until you retire. (This exception does not apply to old 401k accounts or IRAs, where RMDs must begin as required.)
This can create a tricky balancing act, especially if your RMDs push you into a higher tax bracket or trigger IRMAA surcharges. In some cases, it might make sense to convert a portion of your traditional retirement accounts into a Roth IRA before reaching RMD age. Roth IRAs are not subject to RMDs during your lifetime, and qualified withdrawals are tax-free, which can provide more flexibility as you manage your income.
Long-Term Considerations
Working in retirement can be rewarding, but it’s not without its challenges. Will you have enough time to relax and enjoy retirement, or will work take away from family, travel, and other priorities? Balancing the desire to stay busy with the need to preserve your health and well-being is just as important as managing the financial aspects.
There’s also the question of how long you plan to work. If you’re relying on the income to supplement your savings, what happens if you can no longer work due to health issues or other circumstances? Building a solid contingency plan, such as creating a cash reserve or exploring disability insurance options, can help you prepare for the unexpected.
Questions to Ask Yourself
- Are you working in retirement because you want to or because you feel you have to? Understanding your motivation can help you make decisions that align with your values and goals.
- How much will your additional earnings impact your taxes, Social Security benefits, or Medicare premiums? Running the numbers with a financial or tax advisor can provide clarity.
- What kind of work do you want to do? Whether it’s part-time employment, consulting, or volunteering, choose opportunities that bring you fulfillment without overburdening your schedule.
Final Thoughts: Make a Plan
Working in retirement can be a great way to stay active, engaged, and financially secure, but it’s not a decision to make lightly. From taxes and Social Security to Medicare and RMDs, the financial implications of working during your retirement years require careful planning and thoughtful consideration.
Take the time to evaluate your options and run through different scenarios. Consult with financial and tax professionals who can help you navigate the complexities and ensure your decisions align with your long-term goals. Whether you’re working out of choice or necessity, having a plan will give you the confidence to enjoy your retirement years to the fullest.
Retirement isn’t just about stepping away from work—it’s about stepping into a new chapter of life. Make sure you’re prepared to make it the best chapter yet.