Getting older isn't what it used to be. Today's retirees strive to stay healthy as they age. In an effort to be active, many older adults continue working part-time after retirement.
In fact, workers age 65 and older are more likely to be employed part-time than people in the prime of their career, according to AARP, Pew Research also finds that older workers spend more time on the job today as compared to past generations.
Retirees can make extra income by picking up a job, which provides an added boost to their spending and saving. However, many older adults may not be aware that part-time work can affect their benefits and taxes.
If you are retired or considering retirement, keep reading to learn more about how part-time work may impact your Social Security payments, Medicare costs and tax obligations.
Keep these considerations in mind so you can plan your financial future and figure out if part-time work makes sense for you.
Four considerations retirees working part-time should consider
1. Part-time work can temporarily reduce Social Security payments.If you take Social Security before full retirement age (between 65 and 67 years of age depending on the year you were born), there is a limit to how much income you can earn and still receive full benefits. In 2019, the limit is $17,640, a $600 increase from 2018. Above that amount, $1 in benefits is withheld for every $2 earned. Once you reach full retirement age, the money comes back to you in the form of a larger check each month.
2. Part-time work can result in paying more taxes.
Part-time income can bump you into a higher tax bracket for income taxes and costly capital gains taxes, too. That can result in paying significantly more in taxes, according to new IRS guidelines.
3. Additional income can complicate Medicare costs.
Extra income can also trigger a surcharge on Medicare Part B (outpatient coverage) and Part D (prescription drugs). The extra fees affect retirees with a modified adjusted gross income above $85,000 for individuals or $170,000 for married couples filing jointly. Surcharges can be appealed in certain cases — for instance, if you experiences a life-changing event that causes a drop in income.
4. You may face a penalty if you don't take the required minimum distribution from retirement accounts.
When you hit the age of 72, you must start taking an annual required minimum distribution (RMD) from a traditional IRA, SEP IRA or SIMPLE IRA. Since RMDs are counted as income, they could increase your overall tax rate. Additionally, if you fail to withdraw the full amount of the RMD or fail to withdraw the RMD by the deadline, the amount not withdrawn is taxed a 50 percent penalty, which can be disastrous for retirement savings. Before going back to work after retirement, you should consider how a part-time job impacts your finances. Keep these considerations in mind when thinking about how additional income you earn could affect your Social Security, taxes and Medicare costs.