What to Consider if You're Going Back to Work When Retired

Many Americans are opting to go back to work once they’re retired for a multitude of reasons, such as a boost in income, stimulation, socialization or a sense of purpose. It’s important to plan ahead, though, as your retirement benefits, insurance and taxes may be impacted.

If you find you don’t enjoy retirement as much as you thought you would — whether you are lonely, miss the routine a daily job offers or are worried about finances — you might consider working longer. The additional income will help you not only build a bigger nest egg, but will also provide you with some stimulating social interaction and new skills.

Consider the following to have the ‘big-picture’ information about how your Social Security, benefits, insurance and taxes may be affected.

Will the Return to Work Create New Expenses?

While you will bring in more income when you return to work, you will most likely also have new expenses. It’s important to consider your transportation, food and business attire expenses. Your new income will be taxed and could change your tax bracket or deductions. Additional income may also affect your Social Security benefits and how much is taxed, which is why it’s important to think about these things ahead of time so that there are no surprises.

Financial planning is important for financial expectation management. An expert financial advisor or tax professional can help you assess how these costs might affect you.

Will your Social Security Benefits be Reduced?

Your Social Security benefits can be affected with a return to work, but there are ways to optimize your benefits if you’re informed. Basically, your age will determine whether your Social Security income is affected. Full retirement age (FRA) as between 66 and 67, if you were born in 1943 or later. If you haven’t reached FRA, your Social Security benefits could be affected with a return to the workforce.

Here are a few things to contemplate:

• If you go back to work before reaching your FRA, $1 in benefits will be deducted for every $2 you earn above the annual limit (which is $17,040 in 2018).
• If you go back to work during the year you reach your FRA, $1 in benefits will be deducted for every $3 you earn above a higher limit ($45,360 in 2018), but only counting earnings before the month you reach your FRA.
• The month you hit your FRA, your benefits are no longer reduced no matter how much you earn.

It’s important to know that the reduction in benefits is not permanent. After you reach full retirement age, the IRS re-calculates the benefit amount and gives credit for months that you did not receive a benefit because of your income. The Social Security Administration has more detailed resources: “Getting Benefits While Working.”

Use the SSA’s Calculator to assess earnings in more detail. An expert financial planner can also help you assess how your Social Security might be affected.

Will Your Social Security Benefits be Taxable with a Return to Work?

Your modified adjusted gross income (MAGI) will determine whether your benefits are taxable. As your MAGI increases from earning a paycheck, a greater percentage of your benefits can be taxed (up to 85 percent). Learn more from IRS Publication 915, or you can consult with a tax or financial advisor.

How Will Health Insurance Benefits From a New Employer Work with Medicare Eligibility?

Eligibility for employer group health insurance is one of the main reasons people return to work once they are retired. Often, employer benefits offer a good supplement or less expensive coverage. If you’re already under Medicare, you can always check with your employer’s human resources department to see how theirinsurance coverage would work with your existing benefits.

If you are covered by private health insurance, do a direct comparison with the potential plan. Typically, group plans are less expensive, but it’s worth it to compare the plans and possibly hold onto your private plan if you’re worried about getting your old coverage or rates back at a later date.

How Are Pensions Affected With a Return to Work?

Pension rules vary and are not offered as much today, but if you have a pension, check with your pension plan provider and the HR department at the potential new employer to see if your pension benefit payments will be affected. If you’re returning to work for a former employer, there may be stipulations, so make sure to investigate ahead of time.

How Are IRAs or 401ks Affected With a Return to Work?

IRA accounts are affected differently. Traditional IRAs required minimum distribution (RMD) rules are not affected by working past age 70½, but Roth IRAs are affected.

401k rules differ by employer plans. So, if you work past age 70½, do your research. Usually, most plans allow you to postpone RMDs from your current employer’s plan until after you retire. If you have a 401k from a prior employer, you may still be required to do the RMD. It’s worth checking investigating with your providers. You can also get more information from the IRS.

Can You Continue Contributing Retirement Accounts If You’re Going Back to Work?

You should be able to contribute to a retirement account if you are working. If you’re under age 70½ and meet relevant income limits, you can also contribute to a traditional IRA or Roth IRA. Your tax situation depends on your income and if you receive retirement plan benefits through an employer. Age limitations apply, so do your research.

Get a Financial Professional’s Opinion If You’re Thinking About Returning to Work

A return to work is instigated by a number of reasons, but it’s always important to get your financial ducks in a row if your money-situation is changing. An expert financial planner can help you assess your current fiscal situation and strategize how to create a balanced retirement portfolio based of your current savings and projected earnings with a potential return to work.

Everyone has a different investment time horizon and investment situation, which is why it’s so important to do your financial due-diligence when it comes to your future.

An expert can help you assess how much money you’ll need to enjoy the retirement you choose, and whether a second job is a good way for you to achieve your goals.