Key Takeaways

• You can work part-time, consult, or earn passive income in retirement, but you must monitor how earnings impact Social Security benefits and taxes.
• Before full retirement age, income above the SSA limit ($23,400 in 2025) temporarily reduces benefits; after FRA, there’s no limit.
• Passive income, such as rent, dividends, or royalties, doesn’t count toward SSA’s earnings test but still affects your tax bracket.
• Strategic planning, like delaying benefits or managing income types, helps you earn without reducing benefits or triggering higher taxes.
• The “encore career” trend allows retirees to stay active and fulfilled while maintaining financial balance through informed planning.

Retirement today looks nothing like it did a generation ago. More older adults are choosing to stay active by working part-time, consulting, freelancing, or building passive income streams, not only to supplement savings but also for purpose and engagement. This shift has given rise to what experts call the “encore career” trend.

But there’s a critical balancing act at play: how can you keep earning while protecting your Social Security benefits and managing your tax obligations? The key lies in understanding the rules and structuring your income accordingly.

This article breaks down how working in retirement affects benefits, taxes, and long-term financial stability, plus strategies to help you earn without accidentally reducing what you’re owed.

The Rise of Encore Careers

The concept of “retiring completely” is fading fast. Many retirees now pursue encore careers, flexible work paths after their first career ends. These might include part-time employment, independent consulting, online freelancing, or creating passive income through property rentals, royalties, or digital content.

Several factors drive this shift:

• Longer lifespans: Today’s retirees may live 20–30 years after leaving full-time work, increasing the need for supplemental income.
• Rising costs: Healthcare, housing, and inflation make continued income helpful, even necessary.
• Personal fulfillment: Many professionals find purpose in applying their skills beyond “traditional retirement.”

Working in retirement doesn’t just help financially; it can also strengthen mental and social well-being. Still, it’s important to structure this work so it aligns with your benefits and tax picture.

How Working Affects Social Security Benefits

The Social Security Administration (SSA) allows you to keep working after you start drawing benefits, but your income may affect how much you receive before reaching full retirement age (FRA).

According to the SSA’s retirement planner on working while getting benefits, there’s an annual earnings limit if you haven’t yet reached your FRA: [1]

• In 2025, the limit is $23,400. If you earn more than that, $1 of benefits is withheld for every $2 you earn above the limit.
• In the year you reach full retirement age, the limit is higher — $62,160 in 2025 and only $1 is withheld for every $3 over the limit. [2]
• Once you reach your full retirement age, there’s no earnings limit; you can earn as much as you want without reducing your benefits. [3]

The SSA also clarifies that only earned income (wages or self-employment) counts toward this limit. Investment income, pensions, or rental earnings generally don’t.

The good news: any benefits withheld because of excess earnings aren’t lost forever. Once you reach full retirement age, your benefit is recalculated upward, replacing earlier lower-earning years with your new, higher-earning ones.

So while working might reduce your short-term payout, it can strengthen your long-term benefit base.

The Tax Implications of Earning in Retirement

Even after you’ve “retired,” the IRS still views most earned or passive income as taxable. Understanding the interplay between Social Security and taxes is essential.

The Internal Revenue Service (IRS) provides detailed guidance for retirees on its Seniors & Retirees portal. [4] Here are key considerations:

• Social Security may be taxable: Depending on your income, up to 85 % of your benefits could be subject to federal tax. If your combined income (half your SSA benefits + all other income) exceeds $25,000 for single filers or $32,000 for joint filers, taxes may apply.
• Consulting or freelance work triggers self-employment tax: That means you’ll owe Social Security and Medicare taxes (15.3 %) on net earnings.
• Passive income affects tax brackets: Even though it may not count toward the SSA earnings test, investment or rental income still raises your adjusted gross income (AGI), which can push you into higher brackets or increase Medicare Part B and D premiums via the Income-Related Monthly Adjustment Amount (IRMAA).
• Withholding still applies: Part-time or freelance work requires tax planning, either through proper withholding or quarterly estimated payments.

Understanding these interactions early can prevent unexpected tax bills or benefit reductions later.

Strategies to Earn Without Hurting Benefits

The goal isn’t to stop working; it’s to work smarter within the SSA and IRS frameworks. Below are practical strategies to help you keep income flowing without losing ground.

1. Delay benefits if possible

If you plan to work past 62 and expect substantial income, consider delaying Social Security benefits. Waiting until full retirement age, or even until age 70, avoids earnings limit reductions and increases your eventual monthly benefit by roughly 8% per year delayed.

2. Stay below earnings thresholds

If you’re under full retirement age, monitor your wages carefully. For example, a retiree earning $22,000 in 2025 stays below the SSA limit and keeps full benefits. This can make part-time or seasonal work ideal.

3. Focus on non-earned income sources

Passive streams like rental income, royalties, dividends, or interest don’t count toward the SSA earnings test. You can use these sources to supplement income without reducing benefits — though taxes will still apply.

4. Build a consulting or freelance framework

For professionals, consulting can be both rewarding and flexible. You can limit projects or bill hours to control income levels. Using a Schedule C business or LLC may let you deduct expenses, reducing taxable income.

(See IRS Self-Employed Tax Center)

5. Use “phased retirement”

Gradually shift from full-time to part-time or contract roles. This reduces taxable income and helps you test how earnings affect your benefits without fully stopping work.

6. Coordinate with Medicare and taxes

Working longer can trigger higher Medicare premiums if income spikes. Check your projected AGI and the IRMAA brackets before taking extra work or large capital gains.

7. Track and rebalance regularly

Use a simple spreadsheet or SSA calculator to track earnings vs. thresholds. Adjust your hours or project mix if you’re nearing the limit.

Smart planning allows you to enjoy meaningful work while keeping benefits intact.

5. Practical Checklist for Retirees Who Keep Working

Use this quick checklist to stay organised and compliant:

1. Know your full retirement age by using the SSA calculator. [5]
2. Estimate total earnings (wages, self-employment, passive income) for the year.
3. Compare earnings to SSA limits if under full retirement age.
4. Track your combined income to estimate if part of your benefits will be taxed.
5. Budget for self-employment taxes or request withholding if doing gig/consulting work.
6. Keep detailed records of income and deductible expenses.
7. Revisit annually as thresholds change each year.
8. Consult professionals if your income sources are complex or international.

These steps ensure you stay compliant, maximise income, and avoid unplanned benefit reductions.

Conclusion

Working in retirement doesn’t have to mean sacrificing benefits or facing tax headaches. The growing encore-career movement proves that many retirees can successfully combine purpose, income, and flexibility, provided they understand the rules.

By knowing how earnings interact with Social Security limits, structuring your income tax-efficiently, and choosing part-time, consulting, or passive income sources wisely, you can make working in retirement both fulfilling and financially smart.

The bottom line: retirement doesn’t have to end your earning power, but it should begin your most strategic stage of financial planning. Use the tools available through the Social Security Administration and IRS to stay informed and keep your benefits and your peace of mind intact.

FAQs

1. How much can I earn while collecting Social Security before it affects my benefits?

If you’re under full retirement age in 2025, you can earn up to $23,400 before benefits are reduced. For every $2 earned above that limit, $1 is withheld. Once you reach full retirement age, you can earn any amount without affecting your Social Security payments.

2. Does passive income, like rent or investments, reduce my Social Security benefits?

No. The SSA’s earnings test only applies to earned income such as wages or self-employment. However, passive income still counts toward your taxable income, which may affect how much of your Social Security is taxed.

3. Can working in retirement increase my future Social Security benefits?

Yes. If your current earnings are higher than those from earlier working years, the SSA recalculates your benefit based on the highest 35 earnings years. This can permanently raise your monthly benefit once you reach full retirement age.

4. What taxes will I owe if I consult or freelance after retirement?

Freelancers and consultants pay self-employment tax (Social Security + Medicare) on net earnings, in addition to income tax. You may need to make quarterly estimated payments to the IRS to avoid penalties. Keeping expense records and filing a Schedule C can help reduce taxable income.

5. How can I work part-time in retirement without hurting my benefits?

Stay below the annual SSA earnings limit if you’re under full retirement age, or delay benefits until you reach it. You can also prioritize non-earned income sources like dividends or rental income. Regularly review your income plan each year to ensure it aligns with changing SSA thresholds and tax brackets.

Article Sources

1. Social Security Administration. “Receiving Benefits While Working”
2. Social Security Administration. “How Work Affects Your Benefits”
3. Social Security Administration. “What happens if I work and get Social Security retirement benefits?”
4. IRS. “Tax information for seniors & retirees”
5. Social Security Administration. “Retirement Age Calculator”