Going back to work after retiring isn’t something many retirees think about when they enter their golden years, but given the current state of our economy, leaving retirement is becoming more common.
Due to high inflation and rising interest rates, many retirees are withdrawing more from their retirement accounts.
For some, this means it’s becoming more challenging to make ends meet, and the idea of generating extra income is tempting. While unretiring may help you get your finances back on track, there are a few financial implications that can catch you by surprise.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
1. Social Security
Have you been collecting Social Security checks throughout your retirement? If so, it may affect your decision to return to work. The most significant factor in how your Social Security benefits will be impacted is whether you've reached your full retirement age.
If you’re receiving Social Security benefits but haven’t yet reached age 67, you can earn only $21,240 in 2023 before your benefits begin to be reduced. If you earn more than that amount, your benefits will decrease by $1 for every $2 you earn.
I tell my clients that once they reach full retirement age, there are no income limits or penalties. If you had any Social Security money withheld because you were earning too much prior to turning age 67, you'll get those withheld benefits as a credit after you reach full retirement age.
2. Medicare
Retirees who decide to return to work must be careful with their Medicare coverage. Medicare Part B and Part D premiums are based on your income, so if you begin making more money, this could increase your premium costs.
If you work for a larger company that offers a health care plan that is acceptable as primary coverage, you can drop your Medicare Part B and re-enroll later without penalty. If you decide to drop Medicare, you have eight months to re-enroll once you are done working or face a late enrollment penalty.
It is also possible to have both Medicare and private health insurance through your employer. One will be considered your primary coverage, and the other will be secondary. You have to remember, however, that if you do have both, you cannot contribute to a health savings account (HSA) through your employer without facing a tax penalty.
If you have both Medicare and an employee health care plan, how will coverage for medical costs work? This all depends on how big your company is. If your employer has more than 20 employees, that coverage will pay the bill first. If there are fewer than 20 employees, Medicare covers the costs.
3. Changes in your tax bracket
Taxes can be a complicated topic for most people, but they can get especially tricky if you return to the workforce out of retirement. While many who choose to unretire are doing it for income purposes, what if that extra cash pushes you into a higher tax bracket? This is especially true for those who have additional income coming from retirement accounts, pensions or Social Security.
You might consider converting some of your tax-deferred retirement accounts to Roth versions, in which you pay taxes upfront. That gives you several advantages. You don’t have to pay income tax when you withdraw money from those accounts because you already paid the tax when you contributed to them.
You also don’t have to take minimum distributions from those accounts, which means you aren’t needlessly adding income that might push you into a higher tax bracket. This is a great scenario where a financial adviser can help you see the big picture and find ways to lower your tax burden should you decide to unretire.
Heading back into the workforce out of retirement is a lot like ending a well-planned vacation early, not something many of us want to do! Avoiding unretirement and saving enough to enjoy your golden years is an achievable goal, but you need a financial plan specifically designed for you in order to do so.
-
The Final Countdown for Retirees with Investment IncomeRetirement Tax Don’t assume Social Security withholding is enough. Some retirement income may require a quarterly estimated tax payment by the September 15 deadline.
-
Hot August CPI Report Doesn't Shift the Rate-Cut Needle: What the Experts SayThe August CPI came in higher than forecast on a monthly basis, but Wall Street still expects a rate cut at next week's Fed meeting.
-
Four Clever and Tax-Efficient Ways to Ditch Concentrated Stock Holdings, From a Financial PlannerHolding too much of one company's stock can put your financial future at risk. Here are four ways you can strategically unwind such positions without triggering a massive tax bill.
-
Beyond Banking: How Credit Unions Serve Their CommunitiesCredit unions differentiate themselves from traditional banks by operating as member-owned financial cooperatives focused on community support and service rather than shareholder profit.
-
Answers to Every Early Retiree's Questions This Year, From a Wealth AdviserFrom how to retire in a crazy market to how much to withdraw and how to spend without feeling guilty, a financial pro shares the advice he's given this year.
-
The Risks of Forced DST-to-UPREIT Conversions, From a Real Estate ExpertSome new Delaware statutory trust offerings are forcing investors into 721 UPREIT conversions at the end of the hold period, raising concerns about loss of control, limited liquidity, opaque valuations and unexpected tax liabilities.
-
I'm a Financial Adviser: You've Built Your Wealth, Now Make Sure Your Family Keeps ItThe Great Wealth Transfer is well underway, yet too many families aren't ready. Here's how to bridge the generation gap that could threaten your legacy.
-
Want to Advance on the Job? Showing Some Courtesy and Appreciation Could HelpTwo business professors share their insights about the impact of digital communication on the social skills of some in Gen Z and the importance of good manners on the job.
-
From Job Loss to Free Agent: A Financial Professional's Transition Playbook (and Pep Talk)The American workforce is in transition, and if you're among those affected, take heart. You have the skills, experience and smarts that companies need.
-
A Financial Planner's Top Five Items to Prioritize When Your Spouse Is IllDuring tough times, it's easy to overlook important financial details, but you'll be so much better off if you take care of these things right now.
