Unretiring? The impact on your Social Security & Medicare

Allworth Co-CEO Scott Hanson shares some of the potential financial ramifications of 'unretiring.'

When the pandemic hit in 2020, tens of thousands of people moved up their retirement dates and left work behind. 

Now, the strong job market has conspired with the higher costs of living (due to record inflation), and the declines that investors have endured during this year’s bear market, to motivate some people to 'unretire' and re-enter the workforce.

Up until age 70, Social Security is designed to provide larger monthly payouts the later you choose to retire. But what are some of the ways that going back to work can impact your Social Security or Medicare benefits?

It largely depends on your age.

If you re-enter the workforce, some of your Social Security benefits may be withheld.

Age is the predominant factor in calculating how returning to work could impact your Social Security. Specifically, how close are/were you to your full retirement age (FRA)?

The FRA was 66 for people born from 1943 until 1954 (all of whom have already reached their full retirement age). Between 1955 and 1959, folks have had two additional months tacked on per year until the FRA reaches 67 for everyone born in 1960 or later.

If you have already reached your FRA, then you’ll experience no decrease in your benefit amount, no matter how much money you earn after you return to work.  

As many of you know, the earliest you can apply to begin receiving Social Security is age 62.

So, for you folks who are under your FRA, and who were receiving Social Security and elected to return to work, you can expect to lose $1 for every $2 you earned above the annual income limit, which for 2022 is $19,560.  

However, it's important to note that you don't lose that money forever. Once you finally do reach your FRA, the Social Security Administration will adjust your benefit to make you whole. 

If you’re receiving Social Security, and you return to work, you can reverse your application.

If you are younger than 70, and you go back to work within a year of receiving your first Social Security payment, you can actually reverse your application. The only caveat is that you’ll be required to pay back any money you’ve already received.

What about people who retire and unretire in the middle of the year?

Called the “special rule,” this scenario typically only applies to the first year you are retired.

Let’s say you quit work and apply for Social Security in May. You then decide to start your own business in September. Regardless of your earnings up to May, or your earnings from your business from September on, in certain circumstances, under the special rule, you may still receive your full benefit amount for the months you are considered by the Social Security Administration to have been fully retired.    

How does unretiring impact your Medicare?

Medicare Part A kicks in at age 65 and is virtually independent of your Social Security (Part B can be deducted from your benefit amount, however). But if you unretire, and you become eligible for health insurance via your employer, then you may have a decision to make between Medicare Part A and your employer’s coverage.

From tax brackets to Social Security to retirement accounts, unretiring can impact virtually every part of your financial life. While there are certainly many valid reasons why you may want to head back to work, speak with your fiduciary advisor and your accountant to see how unretiring will affect your short and long-term financial situation.