More and more retirees are “retiring” from retirement.
Data from the National Institute for Occupational Safety and Health shows the number of retirement-age Americans in the workforce is growing.
And in a survey by Asset Preservation Wealth & Tax, 51% of respondents who’d reached retirement age said they plan to work indefinitely.
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The reasons for retirees planning to work into their later years vary. Some simply have to from a financial perspective, while others want to live an active, purposeful life.
However, working during retirement brings challenges and trade-offs, especially when it comes to Social Security benefits, taxes and healthcare. The decisions you make about when to start claiming Social Security and whether you plan to keep working can have lasting consequences.
The pitfalls of claiming Social Security too early
A common phrase we hear is, “I’ll just take my Social Security benefits at age 62.” While it’s true this is the first age you can start claiming benefits, doing so can backfire, particularly if you keep working.
If you claim and continue working before reaching your full retirement age, which is between 66 and 67 depending on your birth year, a portion of your benefits may be temporarily withheld owing to Social Security earnings limits.
For 2026, you can earn up to $24,480 before benefits will be withheld. In the year you reach full retirement age, the earnings limit increases to $65,160. After you reach your full retirement age, there are no earnings limits.
Upon reaching full retirement age, your benefit amount will be recalculated to give you credit for any benefits reduced and withheld.
Additionally, once you’ve started collecting Social Security, stopping and starting benefits is complicated and can permanently reduce your lifetime payments. It’s not a switch you can easily flip on and off.
Bridging the healthcare gap: Age 62-65
Another major issue for people who claim Social Security benefits early is healthcare. Medicare eligibility doesn’t begin until age 65, so if you leave your employer’s health plan and retire at 62, you’ll need to find coverage on the open market, which can get expensive.
Working part-time may provide access to employer healthcare, but that could put you at risk of exceeding the Social Security income limits. You could turn to private insurance, but the premiums can easily use up a large portion, or even all, of your Social Security check.
The three-year gap between age 62 and 65 is one of the most overlooked in retirement planning. I recommend sitting down with a financial adviser to go through all of your options before claiming early and potentially setting yourself up for financial failure, watching sky-high out-of-pocket premiums drain your savings faster than expected.
Income, taxes and the cost of working in retirement
Even after reaching full retirement age, when the Social Security earnings limit no longer applies, income from work can still impact your finances. That’s because it depends on your total income.
If you’re single and your combined income, the sum of your adjusted gross income (AGI), non-taxable interest and half of your Social Security, exceeds $25,000, or $32,000 for married couples, up to 85% of your Social Security benefits may be taxable.
In other words, the more you earn from working, the more you may have to give back in taxes. It’s not necessarily a reason to stop working, but it does highlight the importance of strategically coordinating your income sources.
Knowing when to claim
Many people think waiting to claim Social Security until age 70 is always the best option, since benefits grow by about 8% each year after full retirement age until age 70. While that may maximize the amount you receive every month, it’s not right for everyone.
For some retirees, the time value of money may matter more. For example, some may start taking benefits at 67 or 68 and use that income strategically by reinvesting it, reducing portfolio withdrawals or using it to strengthen their overall retirement cash flow.
There’s also a break-even point, where the total amount collected by claiming early can surpass what you’d get by delaying. For married couples, it often makes sense to strategically stagger claims, with one spouse claiming earlier and the other delaying for a higher survivor benefit.
At the end of the day, there’s no one-size-fits-all when it comes to claiming Social Security. It all comes down to finding the right balance of longevity, income needs and your overall financial plan.
Social Security should supplement, not replace, your income
Social Security was never designed to be the sole source of retirement income. It was meant to supplement, not replace, your paycheck.
You will likely need around 70% of your pre-retirement income to maintain your current lifestyle, and Social Security was only meant to cover about 40% of that.
That isn’t to say Social Security doesn’t matter. After all, those benefits come from decades of contributing payroll contributions. It’s money you’ve earned. While the benefit may not be life-changing, it can still help cover major expenses, such as housing, travel or healthcare.
The importance of having a plan for claiming Social Security
Working in retirement can be incredibly rewarding, personally and financially. But it also requires strategic planning, especially if you plan to claim Social Security early.
Deciding when and how to claim Social Security is one of the most important financial choices retirees make because reversing your initial decision can be complicated and costly.
Before you claim, make sure you understand how your job, income and healthcare could affect your benefits. Working with a financial professional who can help you strategize Social Security with your overall financial plan can make a big difference. The right timing and strategy can help you keep more of what you’ve earned and lead to a more confident retirement.
