Beware These 2 Social Security Pitfalls If You're Working in Retirement

A lot of people retire and decide that they're done working for good. However, you may have different reasons for wanting to return to a job as a retiree.

For one thing, money might be tight. If you don't have a lot of savings and you're mostly living on your Social Security benefits, you might feel you need the extra income to keep up with your living costs -- especially given the recent stretch of inflation consumers have been forced to deal with.

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Plus, you may decide that you want a job because you're bored or feeling isolated. Many retirees lose their social networks when they stop working, so returning to a job could be a great way to get out and talk to people.

While working in retirement has its benefits, it could open the door to a couple of Social Security pitfalls. Here are two to keep on your radar.

1. You could end up paying taxes on your benefits

It's not a given that you'll pay taxes on the money you receive from Social Security. If those benefits are your only source of income, you may not have to worry about them being taxed.

But taxes on Social Security benefits apply once your combined income reaches $25,000 as a single tax-filer or $32,000 as a joint filer. Combined income is the total of your adjusted gross income plus nontaxable interest you collect plus half of your annual Social Security benefit.

Let's say you're single and your only source of retirement income is Social Security, which pays you $2,500 a month. If so, you're getting $30,000 a year in benefits, half of which is $15,000. That puts you well below the $25,000 combined income threshold for benefits to be taxed.

Let's say, however, that you then get a job that pays you $1,000 a month. Suddenly, your combined income is $27,000, which opens the door to taxes on benefits.

2. You could end up having benefits withheld

Once you reach full retirement age, you can earn any amount of money without the risk of having some of your Social Security income withheld. But if you're receiving benefits prior to full retirement age and decide to work, you'll be subject to an earnings-test limit.

In 2025, you'll have $1 in Social Security withheld for every $2 you earn over $23,400. However, if you'll be reaching full retirement age this year, you'll get more leeway. In that case, you'll have only $1 in Social Security withheld per $3 of earnings over $62,160.

You also won't lose that money forever. You'll get larger benefits once full retirement age arrives. But if a big goal of returning to work is to boost your near-term income, then you need to know of the potential to have benefits withheld if you earn too much.

All told, working in some capacity could do good things for your retirement. But be mindful of the ways having a job could impact your Social Security benefits so you're not thrown for a loop.

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