Could Partial Retirement Be the Right Move for You?

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Rather than clocking out once and for all, 75% of workers think they will work for pay in retirement, according to the 2025 EBRI/Greenwald Retirement Confidence Survey.

This represents a significant increase from the current 30% of retirees who work, some by choice, others out of necessity.

As "partial retirements" become increasingly popular, it's important to understand how earning income can impact your Social Security benefits and taxes.

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Even though you'll still be bringing in money each month, make sure to check with your financial adviser to see how much you have in your retirement accounts and how you can adjust your budget as needed.

Suppose you've started taking Social Security before your full retirement age and are still working. In that case, you'll get a reduction in your benefits if you make more than the exemption amount laid out by the Social Security Administration.

If you haven't started taking Social Security benefits but are thinking about it, there are several factors to consider.

You can start claiming benefits as early as age 62, but the longer you can afford to wait for those benefits, the larger your payments will be each month.

Earning extra income can impact those benefits as well. If you're younger than your full retirement age, you'll have $1 deducted from your payments for every $2 you earn above the limit.

For 2025, that limit is $23,400. When you reach full retirement age, $1 in benefits is deducted for every $3 you earn. In 2025, that limit is $62,160.

You'll also want to consider your health care costs. If you're eligible for Medicare but decide to stay employed, you can hold off on taking Medicare Part B and D benefits and take advantage of your company's health care plan if you work for a company with 20 or more employees.

If you work for a company with fewer than 20 employees, you'll need to apply for Medicare. In most small businesses, after age 65, your health expenses will be covered by Medicare first and any other employer-based plan second.

Generally, your employer-based insurance at a small business might not cover all your expenses.

What are my employment options?

There are several employment options to consider when planning for partial retirement.

If you want to stay with your company, see if it offers part-time options. You could reduce your hours and stay in your role, or become a mentor for up-and-coming employees who could eventually take over your current role.

Not all employers offer this option, so do your research ahead of time.

With so many work-from-home options, you could also find a new job that is less demanding or is a passion project.

You could work with your favorite non-profit in a part-time role, or get involved with a local charity that's important to you.

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If starting a small business has always been your dream, this approach to retirement might be a good option.

With any new business, be aware that you might have to spend more hours than you thought to get the business off the ground.

Consider how much of your retirement funds you can reasonably spend. A financial professional can help you sort out what you need to live on and what you can put toward your new venture.

What should I plan for taxes?

Make sure the extra income you earn from working in retirement doesn't become a tax burden. If you're working and aren't bringing in enough income to live on, you might need to withdraw money from your retirement accounts, such as a 401(k) or IRA.

If you do, you'll need to pay taxes on that income as well.

If you start withdrawing from your retirement accounts before age 59½, you'll also have to factor a 10% early withdrawal penalty into your budget.

Carefully track your income and plan accordingly to make sure you're not caught off guard when tax-filing season rolls around.

Whether you decide to work during retirement or not, a financial adviser can help you navigate all your options and create a plan that fits your lifestyle. It's your retirement so you want to do what is best for you.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Tony Drake is a CERTIFIED FINANCIAL PLANNER™ and the founder and CEO of Drake & Associates in Waukesha, Wis. Tony is an Investment Adviser Representative and has helped clients prepare for retirement for more than a decade. He hosts The Retirement Ready Radio Show on WTMJ Radio each week and is featured regularly on TV stations in Milwaukee. Tony is passionate about building strong relationships with his clients so he can help them build a strong plan for their retirement.