More and more Americans are finding that after a planned and well-earned retirement, they still have a desire to work. Nearly 55% of people ages 60 to 64 were working, at least part time, in 2017, according to the Bureau of Labor Statistics, and among the age 65-to-69 cohort, nearly a third (31.2%) were still in the workforce . While some workers are certainly staying on the job solely for the money, that's not the case for many. With more and more people living longer, healthier lives, it’s quite natural for retirees to seek to maintain their personal connections, and extend their sense of value and contribution.
Whether you are working for personal fulfillment, out of financial necessity, or a combination of both, it is important to understand how additional income might impact other areas of your financial life.
Impact on Social Security
While it typically makes sense for retirees to delay collecting Social Security for as long as possible in order to maximize their total lifetime income, most workers elect to collect as soon as they can, at age 62. This permanently reduces their benefit. If you plan to work in retirement, however, it’s even more important to consider delaying Social Security, since there is a cap on how much income you can earn without reducing your benefits. For example, in 2018, the income cap is $17,040. For every two dollars you earn above that cap, your current Social Security benefit is reduced by one dollar. When you reach full retirement age, your monthly benefit will be increased somewhat due to your additional work, but it’s important to remember that depending on your total income, up to 85% of your Social Security income can be subject to federal income tax. This is another reason it typically makes sense to delay as long as possible, both to increase the total amount you receive, and help offset the impact of taxation. So, before electing your Social Security claiming strategy, it’s important to consider your entire financial picture, inclusive of any income you expect from work during retirement.
“55% of people ages 60 to 64 were working at least part time in 2017… among the 65-to-69 cohort, nearly a third (31.2%) were still in the workforce.”
Increased Medicare Costs
Having higher income in retirement can also increase your cost for Medicare. Higher earners pay a surcharge for Medicare Part B and Part D premiums. The extra charges start for annual incomes above $85,000 for individuals and $170,000 for married couples who file joint returns. For example, Medicare Part B monthly premiums can increase from the lowest rate, in 2018, of $134, to a maximum of over $428, depending on your income and filing status.
You Are Still Subject to Required Minimum Distributions
After age 70 1/2, you are required to distribute a certain amount from your retirement accounts each year, and those monies are subject to ordinary income tax. Even if you are working, you are still subject to these “Required Minimum Distributions” or RMDs, which can have the impact of pushing you into a higher tax bracket, affecting both the taxability of your Social Security income and your Medicare Surcharges, as mentioned above.
One caveat: if your current employer allows you to participate in a retirement plan, such as a 401(k), you typically can still make contributions after 70 1/2, and avoid RMDs on those funds, at least while you are working. That said, you still must take distributions from any other accounts, such as traditional IRAs, or face steep IRS penalties.
There are many valid reasons you might choose to work beyond your intended retirement date, and many retirees choose to both for financial benefit and their personal fulfillment. Regardless of your reasons, it’s important to evaluate all financial options to maximize your total income, mitigate taxes, and ensure you realize the most financial benefit from your labor.
 Bureau of Labor Statistics, Annual Labor Participation Report, 2018.