What You Need to Know About Working in Retirement

There are many reasons people choose to keep working. Here are some things to consider as you plan.
Liz Weston, CFP®
By Liz Weston, CFP® 
Edited by Rick VanderKnyff

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Many people plan to work at least part-time in retirement because they want the income, enjoy what they do, hope to keep active or need a sense of purpose — or some combination of those reasons. But working in retirement can come with some unexpected costs and hazards. Here are commonly asked questions that can help you plan for what’s ahead.

Can I collect Social Security at 62 and still work?

Yes, but collecting Social Security early probably isn’t the best option if you earn very much.

When you start Social Security before your full retirement age, Social Security withholds $1 of benefits for every $2 you earn over a certain amount ($18,960 in 2021). Full retirement age was 66 for people born from 1943 to 1954 and is rising to 67 for people born in 1960 or later.

That withheld money would be added back into your checks over time, starting when you reach full retirement age. But in the meantime, you will have locked in a permanently smaller basic benefit. If you had put off starting Social Security, your benefit could have grown about 7% a year. There’s nowhere else you can get such a high, guaranteed return, so it’s usually worth waiting if you possibly can.

Will working longer increase my Social Security benefit?

Delaying the start of Social Security will increase your checks by roughly 5% to 8% each year you put off your application (until age 70). Delaying could help in another way, as well. Social Security bases your benefit on your 35 highest-earning years. If the amount you earn exceeds an amount you made previously, that could boost your benefit somewhat. People who have several years of low or no income among those 35 years are the ones most likely to benefit from working longer.

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Can I suspend my Social Security benefits if I go back to work?

Once you’ve reached your full retirement age of 66 to 67, you can suspend your Social Security benefit, which means you stop receiving checks. Why would anyone do that? Because suspended benefits can earn a “delayed retirement credit” that boosts the amount people can receive by 8% per year until it maxes out at age 70. People who regret starting their checks early can suspend their benefits at full retirement age and profit from this delayed retirement credit.

If you suspend your benefit, however, that also suspends any spousal benefit your husband or wife may be receiving based on your work record.

Unfortunately, workers at Social Security offices sometimes incorrectly tell people they can’t suspend their benefit once it’s started. You can point them to this page on the Social Security site.

Can I put off required minimum distributions if I’m still working?

The IRS requires you to take certain amounts out of most types of retirement funds starting at age 72 if you were born after June 30, 1949. (The RMD age was 70½ for people born before that date.)

Workplace plans such as 401(k)s are an exception. You don’t have to start distributions from a current employer’s 401(k) or other workplace plan until you leave your job. Another exception is Roth IRAs, which don’t require minimum distributions unless they’re inherited.

Can I keep contributing to retirement funds if I’m still working after 70½?

Yes. The age limit for contributing to an IRA has been eliminated, and you can contribute to a current employer’s 401(k) until you leave that job. If you’re self-employed, you can keep contributing to SEP-IRAs or solo 401(k)s.

Can an employer cancel my health insurance when I turn 65?

If it’s a small employer, the answer is yes. A company with fewer than 20 employees can opt to exclude those 65 and older from the group health insurance plan. Alternatively, the company may let you keep your coverage but it would become secondary to Medicare.

When a company has 20 or more employees, it has to offer the same health insurance coverage to those 65 and older as it does to younger employees. If you want to work part-time in retirement, however, you should check with your employer to see how many hours you need to put in to keep your health insurance. Employers don’t have to continue your coverage if you fall below the minimum number of hours required to qualify for benefits.

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How will working in retirement affect my taxes?

If you’re receiving Social Security and working or receiving other income such as a pension, retirement fund or other investments, at least some of your Social Security benefits likely would be subject to taxation.

Social Security taxation is based on your "combined income" — your adjusted gross income, plus any tax-exempt bond interest, plus one-half of your annual Social Security benefits. AGI includes any money you earn and taxable distributions you take from retirement funds. If combined income is over $25,000 for single filers or $32,000 for joint filers, up to 50% of the Social Security benefit is included as part of your taxable income. For single filers with more than $34,000 in combined income, or joint filers making more than $44,000, up to 85% of Social Security benefits could be subject to tax.

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