Retirees Who Return To Work May Not Be Financially Better Off

Thinking of working as a retiree? Here's what you need to know to protect your finances as a working retiree.

Retirees who return to the workplace are healthier than those who don’t, according to the American Psychological Assessment (APA). The Federal Reserve Board states that one-third of retirees go back to employment. However, working as a retiree doesn’t necessarily make you richer as your Social Security and Medicare benefits could be affected. Here’s what you need to know to protect your finances as a working retiree.

Less Social Security

Over the past two years, three million Americans retired early, according to Bloomberg. If this was you and you now want to get a new job but haven’t yet reached full retirement age (FRA), you need to be aware that your Social Security could be reduced. FRA is currently 66 years and 2 months. If you’re not due to hit FRA this year and you earn more than $19,560, $1 of every $2 earned over this amount will be cut from your Social Security benefits. Those who reach FRA this year can earn $51,960 before $1 in every $3 of Social Security benefits is lost. As you get to retain all of your Social Security benefit once you’re FRA, it’s often best to wait until this age before returning to work.

Tax charges

If you earn more than $25,000 from Social Security benefits and your taxes, then you’ll need to pay tax on a percentage of your Social Security benefits. This figure rises to $32,000 if you jointly file your taxes with your partner. The amount you’ll be taxed will vary, but it could be as high as 85%. By 2050, 56% of retirees are expected to pay tax on their social security benefits. One way to avoid this is to keep a close eye on the hours you work so you avoid the tax threshold. Many retirees will move their retirement account over to a self-directed IRA when they move employers. This is done as it’s less of a financial risk. Another benefit is that there is no tax to pay when you complete the process correctly. A 401k rollover guide will show you how to avoid paying tax by taking control of your retirement account. But as a general rule, you must complete your rollover in the required timeframe.

Medicare penalties

When you head back to the workplace, make sure you check your employer’s group health insurance. If you work for a large employer with more than 20 employees it’s usually okay to delay signing up to Medicare. But when you’re employed by a smaller company, you need to apply for Medicare within the required window. This is usually the three months before your 65th birthday and the 3 months directly after it. Failing to register for Medicaid in this period means you’ll be financially penalized. This includes a late enrolment penalty of 10% for Part A, 10% for Part B, and a variable penalty for Part D.

There are many benefits in going back to work as a retiree, but you mustn’t go in blind. Make sure you’re fully aware of the financial repercussions of working as a retiree and do all you can to avoid being hit with costly taxes and penalties.

Money Journey

Money Journey

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