In 2024, 38% of employed people aged 65 or older worked part-time. Many retirees choose to stay at least partially in the workforce to supplement their income or maintain a sense of routine. However, earning additional income in retirement can affect several parts of your financial plan.

In this week’s Money Wisdom Question Series, Heath Grossman, CFP® explains some of the potential advantages and disadvantages of working part-time while retired.

Potential Benefits

One potential benefit of working part-time in retirement is the opportunity to increase your Social Security benefit. The Social Security Administration (SSA) bases your benefit on your highest 35 years of earnings. Therefore, additional working years at a higher income may help raise this monthly payout. This may be possible even if you are already collecting.

Part-time work may also allow you to continue contributing to an IRA or 401(k). Additional contributions give your retirement savings more time to grow. You may even be eligible for matching contributions from an employer.

Healthcare coverage is another factor to consider. If you’re 65 or older and enrolled in both Medicare and employer-sponsored health insurance, your employer plan may serve as secondary coverage. If this is an affordable option for you, it can help reduce out-of-pocket costs.

Potential Drawbacks

Of course, there are also potential drawbacks to working in retirement. If you collect Social Security before full retirement age, you may be subject to the retirement earnings test. If your earnings exceed the annual limit, the SSA may temporarily withhold a portion of your benefits. The limit increases in the year you reach full retirement age, and the earnings test no longer applies once you reach that point.

Additional income can also push you into a higher tax bracket. This could increase the taxable portion of your Social Security benefits and affect your Medicare premiums. That’s why it’s important to look at your full financial picture before deciding whether part-time work makes sense for your retirement plan.