These days, many people are having a hard time coping with higher living costs. And while inflation levels have been decreasing on a month-to-month basis since peaking in mid-2022, it’s still a lot more expensive to live than it was, say, a year ago.
Retirees may be particularly vulnerable to inflation since many live on a fixed income that consists largely of Social Security benefits. And so if you’ve been struggling to pay your bills, you may be thinking of going back to work in some capacity after having retired.
It’s not a bad idea in theory. But you might run into a few snags.
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A less lucrative prospect than expected
At first, the idea of working to make up for a financial shortfall in retirement might seem like a no-brainer. If you go out and start earning a paycheck again, you’ll have more wiggle room to cover different essential bills, from housing to healthcare to food.
But you could end up facing some unwanted tax surprises when you go back to work as a retiree. First, your extra income might bump you into a higher tax bracket, forcing you to pay a higher rate of tax on some of your money.
Second, earning an income from a job could lead to a scenario where you’re being taxed on some of your Social Security benefits. Federal taxes on benefits (as opposed to state taxes, which are determined by states individually) apply when provisional income (your modified adjusted gross income plus half of your annual Social Security benefit) reaches $25,000 as a single tax-filer and $32,000 as a couple filing a joint tax return.
Clearly, these are not very high thresholds. But earning even just a few thousand dollars a year from a job could bump you into a category where you’re now losing a portion of your Social Security benefits to taxes. So all told, you may not come out ahead financially despite returning to work.
Make sure working makes financial sense
If you’ve really been struggling to make ends meet in retirement and you need a serious income boost, then taking on a job may be a no-brainer. But before you rush to get yourself a part-time job that will boost your income by, say, a few hundred dollars a month, run the numbers to make sure that really makes sense financially — especially in the context of being taxed on your Social Security benefits.
Of course, working as a retiree could benefit you in ways that aren’t just financial. If you’ve been struggling with loneliness and a lack of structure, a part-time job could fill that void.
But if working doesn’t end up being a smart move financially, you could always anchor your schedule and fill those empty hours with volunteer work instead. When you don’t earn money from the work you’re doing, you can rest assured that the IRS won’t tax you on it — or use it as a reason to tax another income source you rely on.
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