Financial Impact of Returning to Work After Retirement
Returning to the workforce following retirement boasts both rewards and potential consequences. While it can provide additional income, structure, purpose, and the opportunity to engage with others, it can also have negative effects on your financial situation. When considering a return to the workforce, we recommend working with your financial advisor and CPA to understand any impact additional income would have on your finances.
THE FINANCIAL IMPACT OF ADDITIONAL EARNED INCOME IN RETIREMENT
Additional earned income may impact your finances in retirement, especially when it comes to your Social Security benefits, Medicare, and taxes.
SOCIAL SECURITY:
Additional income can affect Social Security benefits for individuals who have not yet reached their full retirement age (FRA) and have started taking their Social Security benefits. The threshold for how much income an individual can earn before their benefits are reduced changes yearly. For 2026, the threshold is set at $24,480 annually. If you have not yet reached your FRA, your benefits would be reduced by $1 for every $2 above the threshold in earned income. For example, if you are under your FRA for the entirety of 2026, but had started taking your Social Security benefits and were earning $60,000 annually, you would likely experience a $17,760 annual reduction in Social Security benefits for the year.
MEDICARE:
Increasing your income can cause an increase in your Medicare premiums. This is called an income-related monthly adjustment amount (IRMAA). These amounts are calculated based on your Modified Adjusted Gross Income (MAGI) as reported on your tax return 2 years prior. For example, if you made between $109,000 and $137,000 in 2024 and filed an individual tax return (i.e., filing single, not married filing jointly), you would be responsible for an additional $81.20 in Medicare premiums each month in 2026. This is due to an IRMAA of $284.10 added to your Part B premium and approximately $14.50 added to your Part D premium.
TAXES:
Returning to the workforce in retirement can increase your tax liability in a multitude of ways, including triggering taxes on up to 85% of your Social Security benefits. Per the Social Security Administration website, approximately 40% of people who receive Social Security pay some taxes on their benefits. Individuals or joint filers who have a combined income (adjusted gross income + nontaxable interest + ½ of Social Security benefits) that exceeds the set thresholds may experience an increase in their tax liability.
In addition, it is important to consider the cumulative effect of earned income in combination with your IRA required minimum distributions (RMDs). Earned income on top of RMDs can bump you into a different income tax bracket and increase your MAGI over the threshold for Medicare IRMAAs. It can also trigger the 3.8% Net Investment Income Tax, if you have investment income and your AGI exceeds $200,000 ($250,000 for married filing jointly).
Thoughtful Guidance for Your Next Chapter
Managing your finances—especially when navigating retirement decisions like returning to work—can quickly become complex and overwhelming. The interaction between income, taxes, Social Security, and Medicare requires thoughtful coordination, and having the right guidance can make a meaningful difference. At Godsey & Gibb Wealth Management, we help clients align their investment strategy, tax planning, and retirement goals so everything works together as efficiently as possible. Just as importantly, you’ll have a dedicated advisor who knows your situation, is easy to reach, and can help you think through both the financial and personal sides of these decisions. If you’d like help evaluating your options or building a plan that supports your next chapter, we invite you to reach out through our contact form or give us a call—we’d be glad to start a conversation.