What to Know About ‘Unretirement’ Before You Decide to Return to Work

Not so long ago, retirement was considered a permanent move, where you kissed your nine-to-five life goodbye in exchange for the newfound freedom to travel, pursue hobbies and visit the grandkids.

But many retirees today are choosing to return to the workforce. As of March, 3.2 percent of workers who had retired a year ago started working again, returning to the workforce at levels not seen since prior to the pandemic. And a recent CNBC survey shows 68 percent of recent retirees would consider taking a new job.

Many have been wooed into “unretirement” by a strong hiring market, while others see more flexible working conditions as offering a measure of work/life balance they didn’t have before. Still others miss the fulfillment that work provided, and many are looking for extra income to deal with rising prices and an uncertain economy.

No matter your reason, there are certain financial considerations you’ll need to keep in mind before you decide to return to work. Here are a few questions to ask yourself before you unretire.

How will returning to work affect my Social Security?

If you want to pause Social Security payments

If you started collecting Social Security already, you may be wondering if you can pause payments to put yourself in a more advantageous position in the future. The short answer is “yes.”

If you decide to stop drawing benefits and are not yet at your full retirement age (FRA), you can withdraw your application for up to 12 months after you first started receiving payments — but you must pay back the amount you have already received. (And you’re only allowed one withdrawal in your lifetime.)

If you are at FRA but not yet 70, you can request that payments be suspended, which will result in delayed retirement credits for each month they remain suspended — ultimately resulting in a higher benefit when you later resume them.

If you want to continue receiving Social Security payments

You can continue to receive Social Security payments while working, but your benefits could be reduced. If you keep taking Social Security but you are younger than your FRA, the Social Security Administration will deduct $1 from your benefit payments for every $2 you earn above an annual earnings limit ($19,560 in 2022).

In the year when you will reach your FRA, the math changes slightly. The Social Security Administration will deduct $1 for every $3 you earn above a higher earnings limit ($51,960 for 2022). Then, starting with the month you reach full retirement age, you can receive your full benefits regardless of how much income you earn.

Because the timing around when to take Social Security is fundamental to a retirement strategy, "it's a good time to talk with a professional about the best way to maximize your benefits,” says Andrew Weber, CFP®, senior director of Planning Philosophy, Research and Guidance at Northwestern Mutual. “Once you set that foundational piece in place it will affect other decisions, because drawing payments earlier ties you down more, whereas the longer you delay, the larger your benefit payment will eventually be.”

What should I do about RMDs?

Once you turn 72, you need to start withdrawing a minimum amount of money, also known as a required minimum distribution (RMD), out of qualified accounts like a 401(k) or IRA. In the event you’re still working, you may not need your RMD money for day-to-day living expenses. “Since you’re not given a choice, it’s important to be mindful this will happen so you can formulate a plan to optimize the distribution, such as reinvesting it or making a charitable donation,” Weber says. (If your employer offers a retirement plan that you’re currently contributing to, you don’t need to take RMDs from that plan until you retire from the job.)

The other thing to consider is taxes. Because an RMD from a traditional retirement account is taxed as ordinary income, you could move into a higher tax bracket in the year you start your RMDs. So you’ll need to take your RMDs and your regular earnings into account when trying to figure out your tax situation. It’s important to talk to a tax advisor to figure out the tax implications of having additional earnings. A financial advisor can also look at your assets and help you determine if there are other strategic ways to minimize your tax burden.

How will this extra income impact my overall financial plan?

Earning a paycheck past your original retirement age can open new doors financially. Not only does it give you more time for your assets to accumulate, but it also compresses the number of years you’ll need to rely solely on your savings, Weber says.



He also suggests talking to an advisor about future income needs and the effect your extra paycheck will have on them. Are there new goals you are trying to fund? Can you use your income to provide an additional cushion for retirement risks like health care costs or long-term care planning?

In the best-case scenario, you may end up with assets you don’t need, which can be passed on to the next generation or donated to philanthropic causes. “Continuing to earn money means you may eventually be in a better position financially to have an impact on the world in a special way,” Weber says.

This publication is not intended as legal or tax advice. Financial Representatives do not render tax advice. Consult with a tax professional for tax advice that is specific to your situation.