Summary

More Americans are choosing to work in retirement, whether out of necessity, enjoyment, or a desire to stay active and engaged. But while there are many benefits to working later in life, doing so can affect your Social Security, taxes, health insurance, and retirement fund requirements.

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💼 Can You Work and Collect Social Security at 62?

You can start collecting Social Security as early as age 62, but doing so while working can reduce your monthly benefit temporarily. If you earn more than the annual income limit — $18,960 in 2021 — Social Security will withhold $1 in benefits for every $2 you earn above that limit until you reach full retirement age. Once you reach full retirement age (currently between 66 and 67 depending on your birth year), those withheld benefits are gradually added back. However, the base benefit you locked in by claiming early will remain permanently lower. Delaying Social Security can increase your monthly checks by about 7% each year, which is why many advisors recommend waiting if you're financially able.

Takeaways:

• You can work and receive Social Security at 62, but benefits may be reduced if you exceed income limits.

• Delaying Social Security increases your benefit by roughly 7% annually until age 70.

Key Terms

• Full Retirement Age (FRA): The age at which you're entitled to full Social Security benefits, between 66 and 67 for most people today.

• Early Retirement Reduction: A decrease in monthly Social Security benefits for those who claim before reaching full retirement age.

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📈 How Working Longer Affects Your Social Security Benefit

Besides delaying your benefits for a bigger payout, continuing to work can also help raise your Social Security check if your recent income replaces lower-earning years in your 35-year calculation window. This is especially valuable for people who spent time out of the workforce or had lower earnings in earlier years. In these cases, higher recent earnings can push up your benefit amount — another reason why working longer can pay off.

Takeaways:

• Social Security benefits are based on your 35 highest-earning years.

• Replacing low-earning years with higher recent income can increase your benefit.

Key Terms

• Benefit Calculation: Social Security uses your 35 top-earning years to determine your monthly payment.

• Earnings Record: The annual income history the SSA uses to calculate your benefits.

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🔄 Suspending Social Security to Earn Delayed Credits

If you started Social Security early but have reached full retirement age and want to boost your benefit, you can suspend your payments. Doing so allows you to accrue delayed retirement credits — an increase of about 8% per year — until age 70. This strategy lets you reset your benefit higher, although it also suspends any spousal benefit tied to your record. Be aware: Not all SSA workers may understand this option, so it helps to be informed when making the request.

Takeaways:

• You can suspend Social Security at full retirement age to earn delayed retirement credits.

• Spousal benefits based on your record also pause when you suspend yours.

Key Terms

• Delayed Retirement Credits: Increases to your Social Security benefit for waiting past full retirement age to start payments.

• Spousal Benefit: Social Security payments are available to spouses based on the higher earner’s work history.

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💰 Required Minimum Distributions (RMDs) and Working

Most retirement accounts require you to start taking required minimum distributions (RMDs) by age 72, but there are exceptions. If you're still working and have a 401(k) with your current employer, you don't have to take RMDs from that specific account until you leave your job. Roth IRAs are another exception — they do not require RMDs during your lifetime, although inherited Roths do.

Takeaways:

• You must take RMDs from most retirement accounts starting at age 72.

• RMDs don’t apply to Roth IRAs or to a current employer’s 401(k) while you’re still working.

Key Terms

• RMD (Required Minimum Distribution): Mandatory withdrawals from tax-advantaged retirement accounts beginning at a certain age.

• Roth IRA: A retirement account funded with after-tax dollars that grows tax-free and isn’t subject to RMDs during the original owner’s lifetime.

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📥 Contributing to Retirement Accounts After Age 70½

Thanks to recent law changes, you can continue contributing to retirement accounts even after 70½. The age cap has been removed for IRA contributions, and if you’re still working, you can also contribute to your employer's 401(k) or, if self-employed, to a SEP IRA or solo 401(k). This offers older adults the chance to keep saving and receiving tax advantages as long as they're earning income.

Takeaways:

• There’s no longer an age limit for IRA contributions.

• Contributions can continue as long as you’re earning income and meet plan requirements.

Key Terms

• SEP IRA: A simplified employee pension plan often used by the self-employed.

• Solo 401(k): A retirement savings plan for business owners with no employees.

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🏥 Health Insurance and Turning 65

Health insurance can get tricky when you turn 65 and are still working. If your employer has fewer than 20 employees, they may drop your group coverage or designate Medicare as your primary insurance. Larger employers (20+ workers) must continue offering the same coverage regardless of age. Part-time workers should verify how many hours are required to maintain eligibility for health benefits.

Takeaways:

• Small employers may drop group health coverage when you turn 65.

• Large employers must continue offering the same benefits to workers 65 and older.

Key Terms

• Medicare: Federal health insurance program for people age 65 and older.

• Group Health Plan: Employer-provided health insurance for employees and often their families.

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🧾 How Working Affects Taxes in Retirement

Social Security benefits may be taxed if your total income — including wages, retirement distributions, and tax-exempt interest — exceeds a certain threshold. For single filers, if your combined income is above $25,000, up to 50% of your benefits could be taxed. At $34,000 or more, up to 85% could be taxable. Married couples face higher thresholds ($32,000 and $44,000). Working in retirement often pushes your income into taxable territory, so it’s important to prepare.

Takeaways:

• Social Security benefits become taxable when your combined income exceeds certain limits.

• Up to 85% of benefits may be subject to taxes depending on your income level.

Key Terms

• Combined Income: Adjusted gross income + tax-exempt interest + half of your Social Security benefits.

• Taxable Social Security: Portion of benefits included in taxable income based on income thresholds.

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Conclusion

Working in retirement can provide financial security, social engagement, and a renewed sense of purpose — but it also comes with rules and trade-offs. From navigating Social Security and tax implications to making the most of retirement account rules, understanding the landscape will help you make smarter decisions as you continue your career past traditional retirement age.