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.
-
Smart Strategies for Paying Your Child an AllowanceBy giving your kids money to spend and save, you’ll help them sharpen their financial skills at an early age.
-
The Mulligan Rule of Retirement — Seven Mistakes You Can FixUse the Mulligan Rule to undo these seven costly retirement errors. While you can’t go back in time, some retirement choices allow for a “correction shot.”
-
From Pets to Paintings: The Little Things That Can Cause Big Estate TroubleSentimental items might have little monetary value, but their disposition can cause hurt feelings. Talking about who wants what and labeling items can help.
-
The Clock Is Ticking: Take Advantage of These Retirement Tax Benefits While They LastRecent tax changes, including an extra $6,000 deduction for those 65 and older, present a golden opportunity for retirees to reduce their tax bills.
-
I'm a Financial Adviser: This Is Why Unmarried Same-Sex Couples Need an Estate PlanWhen illness or death occurs within an unmarried same-sex partnership, family members can step in and push the surviving partner out. An estate plan is vital.
-
A Financial Planner's Guide to a Stress-Free Adventure AbroadStart by looking at flight/accommodation costs, have a flexible schedule, seek out credit card rewards, prep for health issues and plan to cook your own food.
-
I'm a Financial Planner: This Is How Smart Women Can Plan for Financial Freedom Despite Life's CurveballsProactive planning and professional guidance can help to build your confidence and give you clarity when you're navigating major life transitions.
-
Parents and Caregivers: Don't Miss Your Roth Conversion WindowCaring for a child or parent can mean a drop in income and a lower tax bracket. Why not take advantage by moving money into a Roth account? Here's how it works.
-
Testing the Retirement Waters in Florida? A Partial Plunge May Negate Tax BreaksMost folks know Florida is a tax-friendly state, but they might not know that part-time residents may not qualify, as our cautionary tale shows.
-
Catch-Up Contributions for Higher Earners in 457(b) Plans: What You Need to KnowGovernment 457(b) plans are about to get more complex as new Roth catch-up requirements come into force. Here's how to prepare for the changes.
