Working as a Retiree? 3 Pitfalls You Should Know About

Since the latter part of 2021, consumers have been buckling under the weight of inflation. And higher living costs have especially taken a toll on retirees who are limited to a fixed income.

As such, some older Americans are making the decision to return to work in some capacity in order to cope with inflation. That could mean joining the gig economy, consulting in their former fields, or even accepting retail jobs just to help make ends meet.

If you’re thinking of working as a retiree, you should know that your extra paycheck might bring about some unwanted financial repercussions. Here are a few traps you might run into.

1. You might bump yourself into a higher tax bracket

The more total income you have, the higher a tax bracket you’re likely to fall into. That means you’ll be taxed more on your highest dollars of income. And while you can argue that it’s better to earn more and pay more taxes, a higher IRS bill might offset some of the benefits of earning a paycheck.

2. You could end up having some of your Social Security benefits taxed

If you’re a lower earner, you might manage to avoid taxes on your Social Security income. But if your income is moderate, you could face taxes on those benefits.

Social Security taxes hinge on provisional income — your non-Social Security earnings plus half of your annual benefit. If your provisional income reaches $25,000 as a single tax-filer or $32,000 as a married couple filing a joint tax return, some of your Social Security income will be taxed at the federal level. And taking on a job could bump up your provisional income enough to make that a possibility.

3. You could end up having some Social Security benefits withheld

Once you reach full retirement age for Social Security purposes, you can earn any amount of money from a job without impacting your benefits. But if you’ve claimed your benefits before full retirement age and then go back to work, earnings beyond a certain threshold could result in having some benefits withheld.

This year, you can earn up to $19,560 without facing withheld benefits, or $51,960 if you’re about to reach your full retirement age before the end of the year. Next year, these limits will rise to $21,240 and $56,520, respectively. But do be aware that if you earn too much from a job, you’ll have some Social Security income withheld, and you’ll have to wait until full retirement age to get it back.

Working as a retiree could be a smart move not just financially, but also physically and emotionally. There’s something to be said for leaving the house, moving your body around, and interacting with people other than those you share a home with. But if you’re going to take a job to cope with inflation, just make sure that won’t cause more harm than good.

Earning extra money could impact both your tax situation and Social Security income, so you’ll want to make sure that taking a job makes sense.

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