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The Ins and Outs of Working in Retirement

Gone are the days when retirement signified the end of one’s working life.

Thanks to increased life expectancy, the shift away from physically demanding labor and a host of other factors, Americans are increasingly embracing what was once an oxymoron: working in retirement.

For the decade ending in 2024, the Bureau of Labor Statistics predicts a 55% rise in labor participation among those 65 to 74 years old and an 86% increase for those 75 and older. This compares with an estimated increase of 5% for the labor force as a whole during the same period—and far exceeds the projected growth rate for any other age group (see “The growth in gray workers,” below).


The growth in gray workers

The coming decade may see a significant increase in older workers.

Source: U.S. Bureau of Labor Statistics, 12/2015.


While some retirees continue to work out of financial necessity, the bulk of older workers “tend to be among the more educated, the healthiest and the wealthiest,” according to the Center for Retirement Research at Boston College. “People in the highest percentiles of household income may not need to work, but often they want to continue to take advantage of their skills and the opportunities that come with them,” says Robert Aruldoss, a senior financial planning analyst at the Schwab Center for Financial Research.

While working in retirement has advantages beyond the additional income, there are potentially negative consequences for health care coverage and Social Security benefits, along with a host of other important considerations. Here, then, are the pros, the cons and the intangibles when contemplating this alternative to full-fledged retirement.

The potential advantages

Additional income: The benefits of increased cash flow in retirement should not be underestimated, even for those who are financially well-off. “After all, every additional dollar you don’t need to withdraw from your retirement savings is a dollar that can remain invested,” says Rob Williams, vice president of financial planning at the Schwab Center for Financial Research.

What’s more, such outside income can give you more flexibility as to when, or even if, you tap retirement savings, so you aren’t forced to liquidate assets during periods of market upheaval—which can be particularly damaging to retirees (see “Timing is everything,” below).


Timing is everything

Being forced to sell when the market is down—especially in the early years of retirement—can substantially diminish the long-term prospects of your retirement portfolio.

This chart is hypothetical and for illustrative purposes only. Both investors had a starting balance of $1 million, took an initial withdrawal of $50,000 and increased withdrawals 2% annually to account for inflation. Performance of Investor 1’s portfolio assumes a 6% return for the first nine years, a –15% return for years 10–11 and a 6% return for years 12–19. Performance of Investor 2’s portfolio assumes a –15% return for the first two years and a 6% return for years 3–19.


Mental agility: Perhaps equally important, working can help retirees socialize and remain mentally sharp, which can further improve quality of life and extend longevity. “Social contacts are a side effect of employment that keep workers mentally agile,” report Axel Börsch-Supan and Morten Schuth of the Munich Center for the Economics of Aging.1 Indeed, men in countries with later ages of retirement tended to perform twice as well on cognitive tests than those in countries with earlier ages of retirement, according to another study.2

The potential disadvantages

Additional expenses: Going back to work may bring in more income, but it can also involve new expenses, including clothing, food and transportation. The additional income could conceivably bump you into a higher tax bracket, as well, which is one reason both Rob and Robert suggest consulting a financial planner and tax professional to help with the more complex tax implications of returning to work in retirement.

Potentially decreased Social Security benefits: If you’re already collecting Social Security, a greater percentage of your benefit may be taxable as a result of an additional paycheck. That’s because as your modified adjusted gross income increases above certain thresholds, a greater percentage of your benefits is subject to income tax.

There are also limits to how much you can earn without incurring a reduction to your Social Security benefits. Specifically:

  • If you go back to work before reaching your so-called full retirement age (currently 66 but rising to 67 for those born in 1960 or later), $1 is deducted for every $2 you earn above the annual limit, which in 2019 is $17,640.
  • If you go back to work in the year in which you reach your full retirement age, $1 in benefits is deducted for every $3 you earn above the annual limit.
  • If you go back to work any year after reaching your full retirement age, your benefits are not reduced no matter how much you earn.

That said, any reduction in benefits is temporary. “Once you reach full retirement age, your Social Security benefits will revert to whatever amount you were entitled to before you went back to work—plus any benefits that were withheld—so you can recoup those funds over time,” Rob says. For more information, visit

Potentially higher Medicare premiums: Although retirees generally don’t pay premiums for Medicare Part A, which covers hospitalization, they do have to pay premiums for Part B, which covers outpatient visits. Returning to work can push those premiums up if your total annual income is above certain thresholds (see “Premium premiums,” below).


Premium premiums

Depending on how much you earn, your Medicare Part B premiums could increase from $135.50 to as much as $460.50 per month.

Annual income

Monthly Medicare Part B premium in 2019


Married filing jointly


$85,000 or less

$170,000 or less

$135.50 (standard amount)













$500,001 and up

$750,001 and up


Source: For married couples filing jointly, premiums listed are per spouse.


If you already have Medicare parts A and B and your employer offers a group health plan, you need to decide whether to accept or reject the plan. The decision often comes down to your employer’s size:

  • If you work for a company with fewer than 20 employees, Medicare is considered your primary insurer, meaning your employer plan can’t pay for anything covered by Medicare. That said, retirees may still find it beneficial to carry their company plan as a secondary insurer to pay for expenses not covered by Medicare.
  • If your company has 20 or more employees, your company plan is considered your primary insurer and Medicare is considered your secondary insurer, assuming you’ve already enrolled in Part A and Part B. (If you haven’t yet enrolled, you generally can postpone enrollment until your group health insurance coverage ends.)

“If you’re 65 or older and already covered by Medicare, check with your employer’s human resources department about how their insurance coverage would work with your Medicare,” Rob says.

The intangibles

“Returning to work is often a personal decision,” Rob observes. “The fantasy of no longer working and the reality can be two very different things, and so some people turn to part-time work to fill the gap.”

That said, Rob cautions returning workers to “be flexible and aware.” For example, those looking to rejoin their former field may find it’s not so easy to break back into it, given the rapid pace of innovation and the competition from potentially lower-wage workers. “Alternatively, think of things you’d genuinely enjoy doing that could also generate income—consulting in your area of expertise, for instance, or even working at the local bookstore,” Rob says. “Without the need to replace all your former salary, the world of opportunities opens up considerably.”

Additionally, some workers may find a win-win with their current employer by working a fraction of the hours for a fraction of their salary. The worker gets to step back from the demands of full-time employment, while the employer continues to leverage the wealth of experience unique to older workers.

And don’t forget that part of the reason you retired in the first place is to relax and enjoy yourself. “Ideally, work in retirement is just part of the picture,” Robert says, citing hobbies, travel and passion projects as other potential pastimes. “Full-time workers in their peak earning years, in particular, often struggle with work-life balance. But workers in retirement can usually afford to put life first.”

1Axel Börsch-Supan and Morten Schuth, “Early Retirement, Mental Health, and Social Networks,” Discoveries in the Economics of Aging, 06/2014.

2Susann Rohwedder and Robert J. Willis, “Mental Retirement,” Journal of Economic Perspectives, Winter 2010.

What You Can Do Next

Important Disclosures:

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.


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