Pros & Cons of Working After Retirement

By Pam O’Brien · February 12, 2024 · 9 minute read

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Pros & Cons of Working After Retirement

It’s easy to assume that retirees are happy to leave the workforce to pursue more leisurely activities when it comes time to retire. However, a growing number of Americans are choosing to incorporate work into their golden years.

More than half (55%) of Americans currently in the workforce plan to continue working after retirement, according to a 2023 survey by the Transamerica Center for Retirement Studies. Many of them are driven by financial reasons, but almost just as many say their motivation is to stay active.

Working after retirement has pros and cons, however. Here’s what you need to know about working as a retiree.

Is It Possible to Work After Retirement?

Yes! In fact, the number of older workers is growing. According to recent data from the Pew Research Center, roughly 1 in 5 Americans age 65 or older was employed in 2023. That’s more than double the number working in 1987. A full 62% of today’s older workers have full-time jobs. They’re also earning more — $22 an hour compared to $13 an hour in 1987 — and they’re more likely to have a college degree than in the past. Forty-four percent of older workers have at least a bachelor’s degree.

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Benefits of Working After Retirement

From extra income to staying active and providing a sense of purpose, working after retirement has many benefits.

Here are a few advantages older workers may experience.

Working After Retirement May Provide Extra Income

Retirees might start looking for a new job after retirement because they don’t have enough money to cover their living expenses in retirement. This might happen if a retiree didn’t save enough for retirement, if their cost of living increases, or if they face an unexpected financial emergency or medical setback.

According to the Transamerica Center survey, 40% of Baby Boomers say they haven’t done enough to save for retirement. The center estimates that the median retirement savings for this age group is $202,000. Based on the popular 4% rule for retirement, that would give them an income of just $8,000 a year.

For many retirees, working during retirement is a way to offset some of the financial stress of living on a budget — especially in areas with a high cost of living.

On the other hand, jobs after retirement can also provide extra “fun money” that allows retirees to check off some of those bucket list items like a vacation with family.

Plus, if a retiree continues to work in one of the traditional jobs that pays well in retirement, they will continue to pay into Social Security, which may increase the value of the benefits they receive later. They may also be able to put off tapping into their retirement benefit until their full retirement age or later, which can also make them more valuable.

Working After Retirement Can Ease Boredom

Taking on work after retiring can combat boredom after turning in the office keycard. While many people are counting down the years to retirement, some may be caught off guard when they are left with decades of free time.

Retirees may be used to going to a job that provides mental stimulation. A change in that routine could result in boredom when a retiree is suddenly faced with filling long days with no plans. In the Transamerica survey, 50% of those planning to work after retirement say they will do it to be active, and 42% say it will be to keep their brain alert.

Going back to work after retirement may help to ease some boredom a retiree could face. Some retirees might choose to return to an old passion, pick up a new job to learn new skills, or even take on a job focused on charity or giving back. Working part-time in retirement might give a retiree the excitement of a job, combined with the benefits of a more flexible schedule.

Working After Retirement Helps With Social Engagement

In addition to giving structure to every day and helping keep boredom at bay, working in retirement might help a retiree stay social.

One unforeseen side effect of retirement and leaving the workforce may be realizing that many friends are also colleagues. After retirement, it might be hard to make new connections. Taking on a job after retirement, even working part-time in retirement, may help foster new social connections.

Downsides to Working After Retirement

Before a retiree decides to take on a job after retirement, it is vital to consider any possible downsides. While taking a job after retirement comes with many benefits, there are also some drawbacks to taking that side gig.

Working in Retirement May Impact Social Security Benefits

First, it is important to know that working in retirement could impact retirement benefits. For example, Medicare eligibility and Social Security benefits may both be affected by income earned at a post-retirement job. Some retirees are still eligible for Social Security even when they’re working, but it depends on their age and income.

Although eligible workers can technically begin to collect Social Security benefits anytime between ages 62 and 70, retirement benefits may be reduced by a percentage until the retiree reaches their “full retirement age.”

Full retirement age for people born in 1960 or later is 67. If you take Social Security before you’ve reached that age, the Social Security Administration could reduce your benefits while you’re working.

For 2024, if you are receiving Social Security payments before you’ve reached full retirement age and your income exceeds $22,320, the Social Security Administration will reduce your benefits by $1 for every $2 earned over the annual income limit. In the year you reach full retirement age (before your actual retirement age birthday), $1 of benefits is deducted for every $3 made above the annual income limit, which is $59,520 in 2024.

The good news is that once you reach full retirement age, you can work without facing a reduction in Social Security benefits. These restrictions and limits change annually, so you might want to check with the Social Security Administration to determine how taking on work in retirement could affect your benefits.

Working in Retirement May Change Taxes

In addition to changes to benefits, working in retirement could change the amount you owe in taxes. Social Security benefits might be taxed if a retiree has a combined income over a certain threshold. “Combined income” includes adjusted gross income, nontaxable interest, and half your Social Security benefits.

Suppose a retiree files their taxes individually, and their combined income is between $25,000 and $34,000. In that case, they may be taxed on up to 50% of their Social Security income.

And if their combined income is more than $34,000 thanks to working after retirement, they might be taxed on up to 85% of their Social Security benefits.

Of course, workers taking jobs after retirement will also have to pay normal state and federal income taxes on the income earned in their post-retirement jobs. They will also have to pay Social Security and Medicare taxes.

Working in Retirement Could Mean Less Free Time

One of the most appealing things about retiring is the ability to make your own schedule, or to not have a schedule at all. Depending on the type of work that you do in retirement, you may have to sacrifice some of that freedom to meet the demand of even a part-time job.

Planning for Retirement

Whether or not you expect to work after retirement, starting to plan for your retirement early can make it easier to meet your retirement goals. Proactive planning can give you the flexibility to choose whether or not to work in retirement based on your desires rather than your need for money.

Planning for retirement doesn’t need to be stressful. A good way to start is by using an online retirement calculator to help you nail down specific numbers to work toward. Once you’ve got your number, you’ll want to decide what type of retirement account you want to use to save.

Utilizing an Employer-Sponsored 401(k)

One of the most popular ways for workers to save for retirement is by contributing some of their salary, tax-deferred, to a 401(k), an employer-sponsored retirement plan. In 2024, individuals can contribute up to $23,000 to their 401(k), or up to $30,500 if they’re 50 or older.

Opening an IRA

Workers may also choose to set up an IRA, which is a different type of retirement savings account. This account allows workers to contribute up to $7,000 per year (or $8,000 for those age 50 or older) in 2024.

There are different types of IRAs, but two of the most common are the traditional IRA and the Roth IRA. With a traditional IRA, you contribute pre-tax dollars; with a Roth IRA, you contribute after-tax dollars.

Considering an Investment Account

Individuals may also consider using a brokerage account, or investment account, to save for retirement. While an investment account doesn’t have the same possible tax advantages as a retirement account, it could be an option for those who are looking to save more than the annual limit allowed in a retirement account.

The Takeaway

While it is possible — and even desirable in many cases — to work in retirement, planning well for your golden years can make working a choice rather than a financial necessity. Retirement planning means figuring how much money you need to save for retirement, and choosing the right type of account for saving those funds.

A 401(k) account through work is a great place to start. If, however, you don’t have access to a workplace retirement plan (or you’re already maxing it out), you can open an IRA or an investment account to help save for retirement.

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FAQ

How much money can you make working after retirement?

How much you can make working after retirement depends on the job you have and how many hours you work, among other things. In 2023, the average worker aged 65 and up earned $58,600 annually, according to a survey by the Pew Research Center.

Is it a good idea to work after retirement?

It can be a good idea to work after retirement, depending on an individual’s specific situation. Advantages to working as a retiree might include earning extra income to help pay expenses, preventing boredom, and making social connections. However, there are possible disadvantages to consider as well, including a potential impact on Social Security benefits and taxes, and less free time.

Does working after retirement affect Social Security benefits?

Working after retirement may affect Social Security benefits. For example, if you take Social Security before you reach full retirement age, the Social Security Administration will reduce your benefits by $1 for every $2 earned over the annual income limit (for 2024, the income limit is $22,320). In the year you reach full retirement age, $1 of benefits is deducted for every $3 made above the annual income limit (that limit is $59,520 in 2024).

Once you reach full retirement age, you can work without facing a reduction in Social Security benefits.


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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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