Is Unretiring in Your Future?

Increasing prices and more job openings have encouraged retirees to return to work. Known as “unretirement,” the trend has rebounded to levels that were common before the pandemic.

68% of retirees would consider returning to work, as reported by CNBC All-America Workforce Survey. Many retirees accelerated their retirement due to the pandemic, with 62% leaving earlier than planned and 67% at least two years ahead of schedule. 42% of respondents, up from 36% in 2021, plan to apply for Social Security early and continue working.

The Social Security website offers calculators to help you determine how Social Security cuts would affect you. A 10.5% cost-of-living adjustment is expected for Social Security in 2023, and the study finds that job switchers get nearly 10% pay raises.

Although job openings fell in June, there were still 1.8 open jobs per available worker. Before you start earning paychecks again, you should know a few things if you’re already collecting Social Security retirement benefits. According to Joe Elsasser, founder, and president of Covisum, a provider of Social Security claiming software, Social Security beneficiaries who return to work may be able to earn more in the short-term and eventually increase their monthly benefit checks.

There is a possibility that their benefits could change in the short term. It’s the surprise that people want to avoid, not knowing the earnings test is coming and that they’ll be penalized, Elsasser said. You should know a few things before retiring.

Notify Social Security about your return to work

The Social Security Administration should be notified right away if you plan to return to work. As a result, your checks can begin to be reduced sooner rather than later. Failure to advise the Social Security Administration could result in an unwelcome surprise when the IRS reports your earnings. 

You may receive a letter from the Social Security Administration informing you that they will stop your benefit immediately until any earnings penalty from the previous year is made up. If you aren’t prepared for that, it may disrupt your cash flow. Over your full retirement age, returning to work does not result in an earnings penalty. According to Elsasser, they can earn as much as they want and collect Social Security checks.

As a general rule, the full retirement age ranges from 62 to 67, according to your birth year. You can determine your full benefits eligibility by using the Social Security Administration’s retirement age calculator.

There are two levels of earnings penalties if you return to work after claiming retirement benefits between the ages of 62 and 70. In 2022, you can earn up to $19,560 penalty-free under the first level. Your Social Security benefit is reduced by $1 for every $2 you earn over that limit.

A second level applies to the year you reach full retirement age. In that year, you are exempt from paying taxes on $51,960 in earnings for the months before your full retirement age birthday in 2022.

A person who has reached full retirement age has more flexibility for working and earning income, and the penalty is also less. Despite the earnings penalty, those who return to work still stand to earn more in the short term, as well as when their benefits increase later.

Your benefit check may be bigger later on.

If you have earned a penalty, your benefit will be recalculated later on, which could mean a larger monthly payment. Consider someone who earned $40k after returning to work and receiving a $2,000 Social Security check. They may not receive their Social Security check for the first five months of the year because of the earnings penalty, but in the remaining months, they will receive their $2,000 check.

As soon as a worker reaches full retirement age, the Social Security Administration adds up the months the worker did not receive benefits. After that, the worker’s benefits will be adjusted as if they had been claimed later. Ultimately, their benefits are increased as if they had delayed benefits, Elsasser explained. The important thing to remember is that it is not a tax, Elsasser explained; your benefits will not be lost and will be recalculated upon reaching full retirement age.