The so-called “Great Resignation” during the COVID era was surprising on many levels — but, in many cases, could be explained due to pandemic-related health and safety issues.
Now that those issues have largely stabilized, a new trend is emerging: “unretirement.” One study has found that as many as 1 in 8 retirees between ages 65 and 85 plan to return to work during 2025. While returning to work can be beneficial for retirees and businesses alike, it’s critical that clients understand the tax and financial repercussions of returning to work before they decide to unretire.
Social Security, Medicare and the client’s retirement income planning can all be affected, so it’s incredibly valuable to explore the pros and cons of unretirement before making a decision.
Factors Driving Unretirement
Retired clients decide to return to the workplace for many reasons. Some simply need the money or are concerned about outliving their savings.
For others, the decision hinges on social and emotional factors. Many individuals find that they’re bored during retirement and miss the structure and social elements of the workplace. Some studies find that work helps people remain engaged and prevents cognitive decline.
Business owners, meanwhile, can benefit from talented and experienced workers returning to the workforce.
Social Security and Medicare
Clients' Social Security benefits may be affected if they begin earning money again. Social Security benefits can be reduced based on a complex earnings test for clients who started claiming Social Security benefits before reaching full retirement age (currently between age 66 and 67, depending on the client’s birthdate). Benefits are reduced when earnings exceed a certain threshold.
If the client’s income exceeds $23,400 in 2025, Social Security benefits are reduced by $1 for every $2 above that threshold. In the year the client reaches full retirement age, Social Security benefits are reduced by $1 for every $3 above a $62,160 threshold. These reductions stop, however, in the month that the client reaches full retirement age, and the amounts withheld are added to future benefits.
Clients can also face increased taxes on Social Security when they begin earning income again. Up to 50% of benefits can be taxed when taxpayers file a federal return as single, head of household or qualifying surviving spouse and their combined income is between $25,000 and $34,000 ($32,000 to $44,000 for joint returns).
For taxpayers filing as single, head of household or qualifying surviving spouse, up to 85% of Social Security benefits can be taxed if income exceeds $34,000 ($44,000 for joint returns).
Combined income is generally defined as one-half of the individual’s Social Security benefits plus modified adjusted gross income.
Clients do have the option of withdrawing a Social Security application if they claimed benefits before reaching full retirement age. They have 12 months from the date of benefit approval to withdraw their claim for benefits and repay any benefits they have received, including any benefits paid to the individual’s family and Medicare premiums. Once clients have reached full retirement age, they can voluntarily suspend their benefits and resume earning delayed retirement credits.
When clients’ income exceeds certain thresholds, they can also become subject to increased Medicare premiums. Those begin to apply once clients’ income exceeds $106,000. A tiered structure applies, and premiums increase depending on where the income falls on the scale.
Retirement Plan Considerations
Returning to work, of course, can give the client’s retirement funds more time to grow. The Secure 2.0 Act increased the age at which clients must begin taking retirement plan distributions to 73, and to 75 starting in 2033.
The law also increased the “catch-up contribution” limits to $10,000 ($11,250 as adjusted for inflation in 2025) for taxpayers aged 60, 61, 62 or 63 for tax years beginning after 2024 ($5,000 for simple plans). Since returning to work increases earnings, clients may have more room to take advantage of these new limits.
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