Working In Retirement? What You Should Know

There are a number of good reasons to continue to hold down a job after retiring from one’s career. Not only can it provide extra income, but it can also keep that individual busy with all the free time that they now have.

With that said there are some drawbacks to working during the senior years if that person is not prepared. Here are three things to bear in mind.

  1. If someone has reached full retirement age for Social Security purposes, they can earn as much money as they would like without the income impacting their benefits. But if they are collecting Social Security prior to reaching full retirement age then they risk having benefits withheld if the earnings exceed a certain threshold.
  2. If Social Security is the sole source of income during retirement, that person may not be taxed on their benefits. However, those who have other income may incur Federal taxes on Social Security benefits up to a maximum of 85 percent if it exceeds a certain threshold.
  3. The higher one’s income is in retirement, the higher the tax bracket they fall into. Working during the senior years could put someone into a higher bracket, causing them to pay more tax on their IRA or 401(k) distributions. But if they keep the retirement savings in a Roth account, the withdrawals will be tax-free, and holding down a job will not impact those distributions.

There are plenty of benefits to working in retirement, and in some cases, doing so may be a necessity. But if someone is looking to do that they should be aware of the different tax and Social Security implications first to not be caught off guard.