Going back to work after retirement: everything you need to know
More and more people are saying goodbye to retirement and returning to the workforce. But what is drawing them back, and what are the implications for those who return?
Can you work after retirement?
It’s common to discover that retirement life isn’t for you. The ideal, work-free existence you imagined doesn’t live up to the hype, and you’re considering returning to work.
The first thing to know is that, yes, this is allowed.
You can return to work after you’ve retired. While there are many factors to consider – Social Security benefits, Medicare, income and expenses, and your lifestyle – there is no law or rule against people who have reached full retirement age (FRA) returning to work.
If you’re considering returning to the workforce, you’re not alone.
According to Indeed Hiring Lab, as of March 2022, 3.2 percent of workers who retired a year earlier are now back in employment.
While research detailed by J.P. Morgan reveals that the percentage of people aged 65-75 and 75+ in the workforce is growing, standing at 26 percent and 9 percent in 2021 and growing to 31 percent and 11 percent, respectively, by 2031.
Why do people return to work after retirement?
For some, going back to work after retirement may sound odd. You’ve spent most of your life at work, so why would you want to return, even if it is part-time?
For many, it’s about the money. Retirement is expensive; unless you adequately prepare and plan, you could run out of money sooner than you think. Or your circumstance may change, meaning the money you had set aside for retirement now won’t cover all your expenses.
Part-time work can provide necessary additional income for retirees. In fact, according to the Employee Benefit Research Institute (EBRI), 63.8 percent of people work in retirement to have income for essential expenses.
For others, it’s more about their wellbeing. Retirement can be lonely. You’ve gone from having a stable daily routine to now figuring out a new way of life with perhaps less social interaction. You can feel a little on the outskirts without the buzz of an office, worksite, or shop floor.
Again, according to EBRI, 83 percent work because they find it rewarding, 62.5 percent see it as an opportunity to socialize, and 59.4 percent work to learn new skills and have new experiences.
So, what are the implications, if any, of “unretiring”?
How many hours can you work after retirement?
In most cases, there is no limit to the amount you can work after retirement. You can work and still claim your retirement income from your 401(k), IRA, or Social Security.
However, there are some cases where you may need to do some extra due diligence before signing a new work contract.
Take going back to work for a previous employer, for example. If you had a pension with that employer, checking your plan is important. Plans can vary between employers, and returning to work could impact your pension income. If you decide to go back to work full-time, your payments may stop. Whereas if you return part-time, your pension may remain the same.
Social Security is also another area to consider. What does happen to your Social Security if you work after retirement?
Returning to work after retirement has its implications. As well as boosting your income, it could impact your retirement benefits, including your Social Security.
When it comes to your Social Security benefits, it all comes down to your age.
If you haven't reached your full retirement age (FRA), working reduces your payments by $1 in benefit payments for every $2 you earn above the annual limit. In 2023, this limit was $21,240.
In the year you reach full retirement age, the deduction is $1 in benefits for every $3 you earn above a limit of $56,520. Earnings are only counted up to the amount before you reach full retirement age. So, if you reach that age in June, only your earnings until May will be considered.
If you decide to go back to work after your full retirement age, you can work without your Social Security being penalized.
However, this extra income could push you into a higher tax bracket leading to higher Medicare charges and more taxes.
It’s also important to remember that your Social Security is calculated based on your highest 35 years of income. Working after retirement could boost your benefit by replacing or filling in years when your income was lower.
Due to these factors, working part-time after retirement is common. It provides the best of both worlds.
What happens to your Medicare if you work after retirement?
If you decide to return to work after you’ve enrolled in Medicare, you are still eligible to receive Medicare benefits.
However, if you choose to keep all of your Medicare, you may be pushed into a higher premium bracket due to your additional income.
It’s important to know that you do have other options. For example, if your employer offers healthcare, you may choose to opt into this instead.
When it comes to Medicare, you need to be aware of several rules and deadlines.
Broadly speaking, Medicare is broken into various parts, each covering a different area of your health:
Medicare Part A (hospital insurance)
Medicare Part B (medical insurance)
Medicare Part C (advantage plan)
Medicare Part D (prescription drug coverage)
In most cases, you don’t pay a monthly premium for Part A coverage if you or your spouse paid Medicare taxes while working. However, Medicare Part B is a voluntary program that requires a monthly premium. Parts C and D are also optional.
If you return to work, you may find that your employer’s healthcare plan allows you to opt out of Part B and avoid paying premiums for both Medicare and your employer’s health insurance.
Before you do this, determine whether your Medicare is primary or secondary to your employer’s coverage. This comes down to the size of your employer.
If your employer has 20 or more employees the employer’s coverage is primary, and Medicare is secondary.
If your employer has under 20 employees Medicare becomes your primary coverage at age 65, and the employer plan is secondary.
When it comes to Part D coverage, you can decide to keep it if you have either Part A or Part B. However, if your employer offers better or similar prescription coverage, you may opt for that instead.
If you decide to re-enter retirement, you must re-enroll within a certain time frame to avoid late enrolment penalties.
If you’re wondering how returning to the workforce after retirement will impact your finances, seeking expert advice is important. A good place to start is Unbiased. Here you can get matched with an independent SEC-regulated financial advisor who can ensure you’re getting the most out of your current plan and are on course to achieving your retirement goals.
Senior Content Writer
Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.