Returning to Work in Retirement? 3 Pros and 2 Cons You Should Know About

Many people who retire can't wait to stop working. But you may reach a point during retirement when you decide to begin working again in some capacity.

There can be big benefits to returning to work as a retiree. But there are also some pitfalls to keep in mind. Here's a rundown.

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Pro #1: Extra income

As of 2022, the median retirement plan balance among Americans ages 65 to 74 was a mere $200,000, according to Federal Reserve data. Now the Fed hasn't republished broad retirement savings data since 2022, and chances are, that median balance is higher now due to stock market gains.

But still, a $200,000 nest egg may not go very far in retirement. So if your IRA or 401(k) balance is similar, working is a great way to boost your income and gain more spending power.

It's important to have money in retirement to not just pay your bills, but also, keep busy. So if your IRA or 401(k) isn't providing as much income as you'd like, a job could come to your rescue.

Pro #2: Social interaction

Many people don't realize how much their job serves as a social opportunity unless they retire and stop going to an office or workplace. Even if you're doing well enough financially in retirement to not work, you may want to do so if it provides you with social opportunities.

Of course, not everyone needs this. If you have a network of friends who are retired or family to keep busy with, you may have enough social interaction to avoid feeling lonely. But if that's not the case, working part-time could help solve that problem.

Pro #3: A way to alleviate boredom

When you work 40 hours a week, it's easy to feel like you don't have nearly enough downtime. When you work zero hours per week, it's easy to feel like all you have is downtime -- and way too much of it.

Working could be a good way to avoid feeling bored and restless -- especially if you find a job you enjoy. In fact, if you don't particularly need extra money and are simply looking for a way to stay busy, it takes the pressure off. This means you could try your luck doing freelance work and see where it takes you.

Con #1: Potential withholding of Social Security

While working in retirement is a great way to give your income a boost, you'll need to be careful if you're on Social Security. Once you've reached full retirement age, there are no restrictions in the context of working. But if you haven't yet reached full retirement age, you'll be subject to an earnings test. And exceeding its limits could mean having benefits withheld.

In 2026, you can earn up to $24,480 without having benefits withheld. From there, you'll have $1 in Social Security held back per $2 of earnings.

If you'll be reaching full retirement age in 2026, that limit rises to $65,160. From there, you'll have $1 in Social Security held back per $3 of earnings.

It may be that you won't earn enough to risk having Social Security withheld. But it's important to be mindful of these limits if they apply to you based on your age.

Con #2: Tax and Medicare implications

While earning more money is a good thing in theory, do be aware that it could push you into a higher tax bracket, leading to a higher tax bill than expected. Along these lines, earning too much money could result in surcharges on your Medicare premiums known as IRMAAs (income-related monthly adjustment amounts).

IRMAAs are based on your income from two years prior, so the impact won't be immediate. But it's something to keep in mind nonetheless.

It definitely pays to look at your options for working in retirement if you feel that having a job will benefit you mentally or financially. Just be aware of these potential drawbacks so you can plan around them as needed.

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