Returning to Work After Retirement? Avoid These Three Common Pitfalls

A recently retired guy sits on a couch, considering going back to work.

(Image credit: Getty Images)

Jim Carrey, Al Pacino and Hugh Grant aren’t the only ones who came out of retirement. Countless people return to the workforce after retiring.

For some, it's a matter of money — they have savings, but are afraid it's not enough. For others, it's about their well-being — they're bored and miss the structure and sense of purpose work affords them.

If you want to join the ranks of the unretired, you might want to consider the impact it will have on your finances before you do. It could cost you more money to re-enter the workforce than to stay home.

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If you don’t need the money, “just don’t go get a job, run it by a financial professional first,” says Rose Niang, a financial planner at Edelman Financial Engines. “Sometimes the pitfalls may be worse than what you gain from that job.”

From Social Security to taxes, here’s a look at three potentially costly drawbacks of returning to work after you’ve retired.

If you started collecting Social Security (SS) benefits before your full retirement age (which is 67 for those born in 1960 or later) and then return to work, your benefits could be reduced.

This rule is known as the earnings test, and the Social Security Administration (SSA) applies it to anyone who is working and receiving benefits before their full retirement age.

For every $2 you make above $23,400 for 2025, $1 of your Social Security benefits will be deducted. If you hit full retirement age in 2025, you can earn up to $62,160. For every $3 over that, the SSA will deduct $1.

Once you reach your full retirement age, there is no earnings limit. Your Social Security benefits will go back to normal if you stop working.

“It's not the worst thing in the world if you are getting some income,” says Judith Ward, thought leadership director at T. Rowe Price. “Just be aware that if you are taking SS and you're not at your full retirement age, you might see a reduction.”

While you might bring in more income on paper, income taxes, costs associated with your employment — such as commuting and clothing expenses — and the loss of free time, might make returning to work not worth the reduction in benefits.

2. Medicare premiums could increase

This applies to people age 65 and older on Medicare thinking of returning to work. If you receive any government subsidies and make more than a certain limit, you might lose some of those discounts, says Niang.

If you don’t receive government subsidies but make too much money when you return to work, you have to worry about the Income-Related Monthly Adjustment Amount, or IRMAA.

IRMAA is an extra charge added to the monthly premiums for Medicare Part B and Part D if your modified adjusted gross income (MAGI) from the two prior years exceeds certain limits.

For 2025, your MAGI must exceed $106,000 as a single filer, and $212,000 as a couple. The extra expense for 2025 can range from $888 to $5,326.80 per year for Medicare Part B, and $164.40 to $1029.60 for Medicare Part D, depending on how much your income exceeds the threshold.

Your job alone might not push you over the threshold, but pensions, dividend-paying investments, capital gains and required minimum distributions are all part of your MAGI.

Consider this scenario to put it into perspective: Let’s say you are 65, retired, on Medicare, and take a job in late 2025, making $30,000. That pushes your and your spouse’s 2026 combined MAGI to $240,000 from $210,000.

As a result, for all of 2028, you and your spouse will have to pay higher Medicare premiums for both Part B and Part D. The income might outweigh the increase in premiums, but you won’t know until you do the math.

3. Tax bracket creep

Making more money means you must pay more taxes, and it's just not income taxes. Depending on what tax bracket you land in, you could owe more on your SS benefits, says Niang.

If you make from $25,000 to $34,000 as an individual or $32,000 to $44,000 married filing jointly, up to 50% of your SS benefits could be taxed: More than $34,000 for individuals and $44,000 for married couples filing jointly and up to 85% of your SS benefits could be taxed.

The higher income tax bracket you are in, the more you’ll owe Uncle Sam come tax time.

“If you need the money, chances are you are not as concerned about these pitfalls,” says Ward. “If you don’t need the money and like the work and the income is a bonus, these are things you might want to be aware of.”

Find the right balance

Ultimately, it's all about balance. Nobody is telling you not to return to work, but if you're doing it out of boredom, you have to weigh the costs against the gains.

If it's a $7.25 an hour job at a pet store that will bring you joy, Niang says go for it. But if it's a $100,000-a-year consulting gig, you might want to speak with a financial adviser to understand how it will impact Social Security, Medicare, and taxes before you leap.

There could be other opportunities to volunteer or ways to solve the boredom problem without monetary gain.

“Run the numbers before you accept the job,” says Niang. “Make sure you weigh the upside and the downside.”

Donna Fuscaldo is the retirement writer at Kiplinger.com. A writer and editor focused on retirement savings, planning, travel and lifestyle, Donna brings over two decades of experience working with publications including AARP, The Wall Street Journal, Forbes, Investopedia and HerMoney.