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Will my Social Security benefits change if I unretire?

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Retirement is a common goal, but many factors will affect when exactly you decide to retire. Early retirement incentives, leadership changes or job modifications may make retiring earlier than anticipated an attractive option. You might even find yourself retired for a time—starting to collect Social Security and other benefits—but then want to work again.

Can you stop Social Security and go back to work? Indeed, you can "unretire," but there are some potential caveats related to your federal retirement benefits. If you decide to rejoin the workforce, your Social Security payments likely will change depending on how much money you're earning and your age. Let's take a look at what's involved with unretiring.

What to think about before unretiring

The urge to return to work might surface for several reasons. Some people miss the camaraderie and personal fulfillment of working regularly and may want to pursue it part or full time again. Others realize that achieving some of their financial goals might be easier if they had more income. Or an opportunity may arise that calls to your interests or passion that makes working more appealing than retirement.

If you find yourself contemplating a return to work, you're not alone. A recent report from the job search company Indeed found that 1.7 million people who had retired as of March 2021 were back in the workforce a year later, a total of 3.2% of retirees. This may be a higher than average number since job loss, market volatility and inflation persuaded some people to retire earlier than planned during the COVID-19 pandemic. Some of these retirees may not have intended to retire that early and are now exploring their work opportunities. When returning to work, you'll want to know all the impacts this choice has on your Social Security benefits.

How working after retirement affects Social Security benefits

Social Security is structured to provide larger payments the later you choose to retire, and taking benefits early can potentially result in them being withheld later if you choose to reenter the workforce. However, there are plenty of times where the modest offset of one's Social Security benefits may be well worth the combination of income and personal fulfillment that returning to work provides. Also, when benefits are withheld due to income earned, it can increase your benefit later on when you retire again.

The greatest distinction in how your return-to-work income will affect your Social Security benefits is related to whether you've reached full retirement age. If you return to work after full retirement age, you'll experience no drop in benefits no matter how much you earn.

If you're younger than full retirement age

In general, choosing to work in retirement before full retirement age may cause a temporary reduction in benefits, but you eventually will see a larger benefit when you "re-retire."

If you retire when you're younger than retirement age but go back to work within 12 months, you can return the benefits you've received and stop receiving more, a complete do-over. You'll then just claim Social Security again when you "re-retire," likely receiving a higher benefit check at that time as a result of being older.

For income earned before full retirement age but after those first 12 months of retirement, you'll have $1 deducted from your benefits for every $2 of earnings above $19,560. Earning less than $19,560 wouldn't affect your benefits.

You will want to run the numbers based on your anticipated income and timing rather than following a general rule. For instance, if you haven't reached full retirement age and you know you're going to make $15,000 a year when you return to work, your income will have no effect on your benefits because it's under the limit of $19,560. Therefore, you'd make that decision based just on your interest in the work and earnings.

But let's change the details a bit and put the income at $26,000. At more than $6,000 over the limit, that situation means your benefits would be reduced by about $3,000. You'd have to decide whether returning to work is still worth it considering the decrease in benefits.

If it ends up that going back to work would put you out of your financial comfort zone right now, remember that you can use your time in other ways, like volunteering. It's all about looking at your options.

If you have reached full retirement age

Once you reach full retirement age, you will receive your full benefit going forward. There are no more benefit reductions, and if you delay your retirement further past full retirement age, you'll see an even larger payment when you do eventually take Social Security, up to age 70. At these ages, though, there is usually no Social-Security-related downside to returning to work if some combination of the work itself and the income appeals to you.

How benefits may be recalculated

If you have your benefits withheld due to returning to work, you're likely to have your benefits recalculated in the future, and you usually will receive more. If you pay back your benefits so far during those first 12 months, your future benefit will grow because you'll effectively re-do your retirement at an older age.

Also, the benefits you qualify to receive are tied to the top-earning years of your career, so if you unretire and have a year of relatively high income, the SSA may recalculate your benefits. When you begin qualifying for benefits again—or when you reach age 70 and automatically receive benefits—you may see that your monthly benefit is higher.

Other things that may impact your decision to unretire

Make sure that your choice to unretire takes Social Security into account but also keeps in mind any other changes that returning to work might entail.

Potentially delaying required minimum distributions (RMDs)

If you return to work and are eligible for a 401(k) retirement plan, you may be able to delay the required minimum distributions from that specific employer's plan. Letting more time pass while your assets grow in retirement accounts is one way to potentially see your investments increase for the rest of your retirement.

If you qualify for a pension, you'll also want to see if your eligibility or payments are affected by going back to work.

Medicare vs. employer-offered health insurance

While qualifying for Medicare Part A when you turn 65 is generally independent of whether you're taking Social Security benefits, it's wise to check with the SSA if you are considering unretiring. For example, if you are eligible for health care coverage through your work after you unretire, you may need to evaluate your Medicare and other available health care options and make a choice with as much information as possible.

You also may be considering or participating in Medicare Part B and Part D, which have premiums associated with them. If so, you should talk to a benefits administrator to avoid doubling up on payments for the same coverages available through your job.

How additional income impacts your tax rates

You'll want to talk to a tax professional about how additional income post-retirement can affect your tax burden. Every situation is different, but higher income is generally taxed at higher rates. Your tax professional can help you determine any applicable deductions or credits in the event you unretire.

How a financial advisor can help

A knowledgeable financial advisor understands the many factors at play in the decision to unretire. If you feel you could benefit from having one take a personalized look at your circumstances, consider reaching out for assistance. Financial advisors can bring a lot of information to the table that may help you decide on an unretirement option that helps maximize what you value, whether it's earning money to travel, working a few hours a week or focusing on any other priorities you have.

A local Thrivent financial advisor can talk through how unretiring could affect your Social Security benefits, if at all, and whether a move back to work will help you achieve the goals you have in mind.

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Thrivent financial advisors and professionals have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration.

Thrivent and its financial advisors and professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

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