4 Ways to Make the Most of Your 'Unretirement'

Main takeaways

• Retirees who claim Social Security before full retirement age can see benefits temporarily reduced if their earned income exceeds annual limits.

• Returning to work in retirement can increase Medicare premiums and trigger taxation on your Social Security benefits, so it’s important to be prepared.

• “Unretiring” can be a good opportunity to reassess your investment strategy to make sure it aligns with your age and financial goals.

Retirement may be an exciting jump into the next phase of life for older adults, but it’s not always a one-way street. The workforce is seeing a rise in ‘unretirement’—that is, people who have quit the labor market only to later return.

Among the 65-74 age group, the labor force participation rate is expected to grow from 22.0% in 2004 to 29.6% by 2034, according to the Bureau of Labor Statistics. A recent AARP survey found that 7% of retirees had rejoined the workforce in the previous six months alone.

Some workers are motivated by a need to simply stay active, though financial considerations are also a driving force. Nearly half of the respondents to the AARP survey, for example, said their main reason for returning is a need for money or a poor economic outlook.

While going back to work can provide a welcome monetary boost, it may also reshape your tax bill, Social Security benefits and long-term retirement strategy in ways that aren’t always obvious. Before accepting a new position or launching a second-act career, it’s important to understand how returning to the workforce could change your overall financial picture.

1. Factor in the Social Security effect

Getting back into the labor market can certainly boost your financial health, although you might be in for a surprise if you’re receiving Social Security benefits early.

If you’re under full retirement age—which is 67 for those born in 1960 or later—Social Security has an earned income cap of just $24,480 for 2026. If you make more than that, your benefit is decreased by $1 for every $2 earned over the limit.

“If you’re already taking benefits, you might be able to pause them to avoid this penalty,” says John Davis, a planner with JKD Financial in Springfield, Missouri. Fortunately, that penalty decreases in the year you reach FRA, and then disappears completely thereafter.

There can also be important tax implications when you go back to work, says Davis. The IRS uses combined income to determine how much of your Social Security income is subject to income tax. That number includes your adjusted gross income (including your wages), nontaxable interest and half of your Social Security benefit.

For individual filers, a combined income between $25,000 and $34,000 per year subjects half of your benefit to taxation; and a combined income above $34,000 means up to 85% of your Social Security money is taxable.

2. Get ready for higher Medicare premiums 

Another way that your government benefits might be impacted by your return to the workforce: higher Medicare premiums. That’s because a larger income can trigger something known as the Income-Related Monthly Adjustment Amount, or IRMAA. The result is that you could be paying more for Part B and Part D coverage.

“A little bit of extra income in one year could end up costing someone thousands in higher healthcare costs over the next couple of years,” says Matt Miller, a financial planner with the Port Angeles, Washington-based advisory Upleft.

That doesn’t mean going back to work can’t be financially advantageous. But you may want to model the impact on both your Social Security benefits and Medicare premiums before deciding whether it’s a move that makes sense.

3. Review and adjust your tax withholding

Your new job is likely going to withhold taxes based solely on that specific paycheck, without any consideration for your pension or Social Security income, says Davis. That can result in your employer taking out too little income from each paycheck, causing you to owe additional tax when you file your annual return.

But there are a couple solutions that he recommends. You can either report your outside income on the W-4 when you start the job or you can increase withholding on your existing benefits.

“This helps you avoid penalties or big surprises come tax time,” Davis says.

4. Re-assess your investment mix 

Younger retirees, in particular, face twin perils when it comes to managing their wealth, says Miller. One is something called the “sequence of return risk,” where a market downturn early in retirement doesn’t give you enough time for your assets to recover. The other is longevity risk, or the chance of outliving your assets, which can be exacerbated by a dip in the market.

The good news is that earning some income later in life prevents you from having to pull from your investment accounts—or at least at the same rate you previously did. “By returning to work, a retiree can actively reduce these risks by allowing assets to potentially grow longer,” says Miller.

But extending your investing timeline doesn’t mean you should be overly aggressive with your asset mix, warns Jörn Kleinhans, a tax and investment advisor with Scorpio Tax Management in Orange County, California.

“Returning to work is a good time to assess whether you’re still comfortable with your current level of equities or if you want to be more moderate in your risk profile,” says Kleinhans.

If you’re in your 60s or older, he suggests shedding your more speculative investments—crypto and AI-related securities, for example—and leaning on broad stock funds for the growth portion of your nest egg. You can then balance that with more conservative assets like T-bills to give your portfolio added stability.

One of the advantages that the “unretired” have, he notes, is that they’re not necessarily drawing from their investments for income and can be more strategic about rebalancing their assets. With the stock market recently reaching a new high this month, it’s an especially good opportunity for those who want to play it a little safer.

“This is a great day for a retired person to pull out some money from the market,” he says.

The upshot

For retirees, returning to work can offer more than just an extra paycheck—it can also provide greater flexibility in managing withdrawals, preserving savings and reducing long-term financial risks. But before making the leap back into the workforce, make sure you understand how additional income could ripple through your taxes, healthcare costs and retirement benefits so you can make the most of your second act.