Balancing Work and Wealth: The Financial Impact of Earning in Retirement

You’re not alone if you dream less about spotting the illusive piping plover and more about finding the perfect job after retirement. More and more Americans have shaky confidence about their savings sustaining them during retirement and are seeking ways to help make ends meet. For example, 36% of workers do not expect to retire fully until after the age of 70, and 52% plan to work in some capacity well into retirement, according to the annual Transamerica Institute Retirement Survey for 2025.

Whether you plan to keep working to supplement your income, stave off boredom, or keep yourself sharp, it’s important to understand the benefits and challenges of working during retirement before dusting off your resume.

Understanding Retirement Income Sources

Eighty percent of retirees rely on multiple sources of income for retirement. Social Security benefits are among the most widely used, with 9 in 10 Americans over age 65 drawing benefits. Still, Social Security benefits averaged $1,976 per month in January 2025 and only make up about 31% of a retiree’s income. Other common sources comprising the rest of the retiree’s income include pensions, personal savings, and investment withdrawals.

Retirees who plan to continue working should be aware of how earned income can affect other sources of retirement revenue.

Social Security Income

Earned income does not impact Social Security benefits once you reach your full retirement age (FRA), which is based on your birth year. If you have not reached FRA and earn over the Social Security Administration’s (SSA) income limits, part of your benefit will be deducted. However, the deducted portion is added to your overall benefit and paid out after you reach full retirement age.

• If you are under FRA for the entire calendar year, Social Security withholds $1 of every $2 you earn above $23,400.
• In the year you reach FRA, the SSA withholds $1 of benefits from every $3 earned above $62,160 until the month before your birthday.
• After you reach FRA, earned income does not reduce benefits.

Pensions

Earned income typically does not affect pension payments, but it may impact when you can begin taking your pension.

In retirement, if you work for a new employer, your earned income does not affect your pension payments.

However, if you reach retirement age and decide to stay in your current job, your pension plan likely has guidelines about the distribution of your pension payments. Some pension plans may prohibit you from taking pension payments while still employed. Others may allow you to begin withdrawing your payments at the pension’s designated retirement age, even if you are still working for that company. Some companies even offer phased retirement, whereby workers reduce their hours to part-time and collect a portion of their pension. 

Investment Withdrawals

Earned income does not affect investment withdrawals, but there may be some ripple effects if you take investment withdrawals while earning income from employment. 

Withdrawals from taxable investment accounts are not considered earned income. Therefore, they do not bump you into a higher tax bracket or impact your Social Security benefits or pension payments.

Roth IRA withdrawals after age 59½ are not taxed, nor do they add to your gross income. However, withdrawals made from other retirement accounts, such as traditional IRAs or 401(k)s, are taxed as ordinary income and can increase your taxable income or tip you into a higher tax bracket.

Personal Savings

You pay tax on any interest earned in your savings account every year, so earned income in retirement does not affect your savings account or any withdrawals you make for a rainy day or a sunny vacation.

The Financial Benefits of Working in Retirement

According to the 2024 U.S. Retirement Survey done by investment management firm Schroder, Gen Xers estimate they will need more than $1 million to retire comfortably, but very few are on track to save even close to that amount. With retirement approaching for so many Gen Xers, it’s no surprise that 44% are worried about outliving their retirement savings.

Working in retirement has many financial benefits for retirees who are either not ready to leave the workforce entirely or hope to bridge their income gap.

Increased Income

No matter what Notorious B.I.G. told everyone in 1997, more money does not mean more problems for most retirees. Earning income in retirement through the same full-time job, a new one, or part-time employment can reduce the stress retirees feel to support their everyday budget, special occasion spending, or travel. Increased monthly income can also have a trickle-down effect on other retirement income sources.

Delayed Withdrawals From Retirement Accounts

“Working longer provides the flexibility to avoid liquidating assets during periods of market downturns, thereby preserving the overall balance and health of the retirement portfolio,” says Martin A. Smith, CRPC, AIFA, founder and president of Wealthcare Financial Group Inc. “This careful timing of withdrawals, combined with ongoing contributions and reinvested earnings, can create a more resilient financial plan that better withstands the uncertainties of future market conditions.”

By continuing to work, retirees can close the gap between monthly revenue and monthly expenses, allowing them to delay tapping into retirement accounts. Waiting on withdrawals gives retirement funds more time to grow, providing a larger cushion for the future—when the retiree no longer can or chooses to work.

However, it’s important to note that traditional IRAs and 401(k)s require minimum distributions (RMDs) starting at age 73, even if you’re still working. The exception to this rule applies if you’re still employed at the company sponsoring your 401(k) and do not own more than 5% of the company.

Enhanced Social Security Benefits

You can start receiving Social Security benefits as early as age 62, but postponing taking your benefits can increase them significantly.

Each additional year you work adds another year of earnings to your record, potentially boosting your benefit amount by raising your lifetime average earnings. The Social Security Administration reduces your benefits by about 0.5% for each month you start receiving benefits before your full retirement age (FRA). Conversely, the SSA increases your benefits by 8% annually for each year you delay taking benefits after reaching FRA.

“By postponing Social Security, retirees can allow these credits to accumulate, thereby maximizing lifetime benefits and reducing the pressure on other income sources,” Smith says. “However, the decision to delay must be tailored to individual circumstances, including health status, financial needs, and overall retirement objectives. For many, if day-to-day expenses are comfortably covered by alternative income, waiting until age 70 represents a prudent move to secure higher monthly benefits later in life.”

Increased Savings and Investment Growth

“Supplemental income not only provides additional funds to cover everyday expenses but also creates an opportunity to reinvest earnings into growth-oriented investment strategies,” Smith says.

The longer retirees work, the longer they can keep contributing to retirement accounts such as a 401(k) or IRA, potentially boosting their nest egg. In 2025, retirees over age 50 may contribute an additional $7,500 in catch-up contributions to their 401(k) or 403(b) accounts and an additional $1,000 to IRA accounts.

Tax Implications of Earning in Retirement

Any time you earn money, you pay taxes. It’s a tale as old as time, or at least as old as 1861, when Americans started paying taxes. The income you earn from working during retirement, especially if you’re drawing from other revenue streams, can affect your tax liabilities.

“Additional income from part-time or full-time employment, depending on the amount, may increase one’s tax bracket,” says Bruce Bergquist, tax consultant at Bergquist NYC Consulting.  Higher tax brackets mean higher tax liabilities and less money in your pocket.

Social Security benefits are taxable once earnings reach the income threshold, but the amount of tax levied depends on the taxpayer’s filing status and income. To determine if Social Security benefits are taxable, add 50% of your Social Security benefit amount to the income from your other sources. Those income sources include pensions, wages, interest, dividends, and capital gains. If the amounts are over $25,000 for single individuals (or over $32,000 for married couples), those filers should expect to pay taxes on a portion of their benefits. Earned income increases the likelihood that benefits plus all sources of revenue will exceed this amount.

Balancing Work and Lifestyle in Retirement

While financial benefits are important, especially for those who feel their money won’t stretch as far as they need it to, there are plenty of other reasons to work in retirement.

It may seem counterintuitive to pursuing your free-time dreams, but it can positively impact fulfillment, health, and well-being.

Studies show that retirees working in retirement are less likely to develop chronic medical conditions like diabetes, high blood pressure, lung disease, heart disease, or stroke. Retirees who keep working in some capacity are also less likely to suffer from Alzheimer’s and dementia.

Retirees who leave their old profession have an opportunity to explore something that brings them more personal fulfillment and joy. The structure of continuing to work also appeals to some retirees who thrive on routine. And it may allow retirees to strike a perfect work-life balance after years of tireless dedication to their full-time gig. 

Still, these are the years you’ve worked hard for your entire life. It’s important to remember why you wanted to retire in the first place and make time for leisure activities you enjoy and spending time with loved ones.

The Bottom Line

Retirement today looks different for everyone. For many, working in retirement makes financial sense to delay withdrawals, boost income, and supercharge Social Security benefits. Beyond the numbers, continuing to work can provide a sense of purpose, social connection, and fulfillment.

“Who said you have to stop working completely at 65? Maybe you phase into semi-retirement, start a side business, or turn a passion into income,” says Stoy Hall, CFP, CEO and founder of Black Mammoth. “Retirement isn’t just about having a pile of cash—it’s about having options. The goal isn’t to stop working; it’s to stop working on things you have to do and start working on things you want to do. That shift in mindset can make all the difference.” 

Before going on a job hunt, take time to assess your financial situation, future tax liabilities, and personal goals. Whether you’re working by choice or out of necessity, aligning your job with your desired lifestyle is key to making the most of your retirement years.