Key Takeaways
- About one in five Americans age 65+ are employed or self-employed.
- Older adults are twice as likely to be working today than age 65+ adults in 1985.
- Unretirement occurs when retirees rejoin the workforce after leaving it.
- Later life work can trigger tax on Social Security, the net investment income tax, and IRMAA.
- Social Security impacts include the earnings limit, tax on benefits, and higher benefits.
- Continued work in later life provides financial and non-financial benefits.
Roughly 20% of Americans age 65+ are employed or self-employed. Baby boomers (born 1946-1964) are remaining in the workforce at higher rates than previous generations did at the same age. Reasons include personal choice (e.g., for structure and social interaction) and financial necessity.
Some older adults keep long-time jobs well beyond the traditional retirement age of 65 or Social Security full retirement age of 66-67 (depending on birth year). Others seek new full- or part-time jobs or become entrepreneurs. A third group leaves the labor force and returns later (i.e., they unretire).
This article describes statistics about older adult workers, unretirement, reasons to work longer or unretire, advantages and disadvantages of later life employment, and financial and non-financial implications of working longer.
Older Adult Employment Statistics
The increased number of older adults in the labor force reflects demographic and economic shifts such as increased life expectancy and the decline of traditional pensions. According to AARP, older adults are twice as likely to be working today than age 65+ adults in 1985. Those best positioned to work longer are healthier, better educated, and higher earning. Employment growth among those age 75 and older is expected to rise faster than any other age group in the coming decade.
What Is Unretirement?
Many older adults find that full stop retirement does not meet their emotional, social, or economic needs. Unretirement occurs when retirees rejoin the workforce after leaving it. A study by RAND found that 26.4% of retirees observed for at least six years after their first retirement eventually returned to work, most commonly about two years after retiring.
Reasons to Work Longer or Unretire
Motivations to continue working include:
- Insufficient income to pay household expenses (financial need)
- An enhanced lifestyle (money for “extras”)
- Social engagement, mental stimulation, and a sense of purpose
- Boredom and/or a desired for structured time
- A desire to postpone withdrawals from savings to make assets last longer
- A desire to increase Social Security benefits by claiming at an older age
Advantages of Working at Age 65+
Major financial pluses of later life employment include continued income, continued retirement savings (e.g., in a 401(k) or IRA), continued employer benefits (e.g., health care coverage and life insurance), enhanced Social Security and pension benefits (at a later date), and more time to pay down debt before retirement. Other benefits include mental stimulation, skill utilization, social engagement, and a sense of purpose and fulfillment.
Disadvantages of Working at Age 65+
A major downside to continued work is delayed or reduced time for leisure activities, hobbies, travel, and spending time with family and friends. Other challenges include the physical demands of work, keeping up with technological changes and new work processes (i.e., skill relevance), age discrimination, and continued spending on work-related expenses (e.g., commuting).
Social Security Impacts
Social Security Earnings Limit
The Social Security earnings limit applies to people who work while receiving retirement benefits before reaching full retirement age (FRA). In 2025, beneficiaries under FRA can earn up to $23,400 annually without penalty ($24,480 in 2026). Above that, $1 in benefits is withheld for every $2 earned.
In the year someone reaches FRA, the earnings limit is $62,160, with $1 withheld for every $3 earned ($65,160 in 2026). After reaching FRA, there is no earnings limit, and benefits are no longer reduced, no matter how much money someone earns.
Tax on Social Security Benefits
Tax on Social Security is based on a calculation called “combined income” (adjusted gross income + nontaxable interest earned + half of Social Security income).
If combined income (including job earnings) is greater than $25,000 for single taxpayers and $32,000 for couples filing jointly, up to 50% of Social Security may be taxable. If combined income exceeds $34,000 (singles) and $44,000 (couples), up to 85% of benefits may be taxed. Taxpayers can request tax withholding from the Social Security Administration.
Higher Benefit Amount
Workers’ wages are inflation-adjusted for changes in wage levels over time, and the highest 35 years of earnings are used to determine “average indexed monthly earnings” upon which benefits are based. If there are less than 35 years of career earnings (e.g., someone who stayed home for years to provide caregiving), years without earnings are counted a $0 in the benefit calculation formula.
Earnings in later life can replace those with zeros and low-earning years in one’s teens and early 20s.
Continued FICA Tax
Whether they receive Social Security benefits or not, older workers pay FICA (Federal Insurance Contributions Act) tax like anyone else. Total FICA tax is 15.3% of gross earnings: 7.65% each paid by workers and their employers. The 7.65% tax is divided as follows: 6.2% is for Social Security and 1.45% for Medicare. Self-employed workers pay 15.3% of their net business earnings.
Tax Impacts
Tax Withholding
Compared to young adults, people age 65+ often have multiple streams of income. In addition to earnings from a job, income sources include Social Security, a pension, annuities, dividends and capital gains on investments, interest on savings, and required minimum distributions (RMDs) from tax-deferred accounts. This requires attention to tax planning to assure accurate tax withholding.
Tax Triggers
Later life work, combined with income sources noted above, can trigger three additional taxes beyond ordinary income tax on earnings : 1. tax on Social Security (described above), 2. the net investment income tax (NIIT) that begins at $200,000 (singles) and $250,000 (couples filing jointly), and 3. the Medicare premium surcharge for higher earners called IRMAA.
Tax Reduction
Older workers can reduce income taxes by contributing to tax-deferred retirement accounts like 401(k)s and traditional IRAs. Doing so will lower taxable income. Workers age 50+ can make an additional “catch-up” contribution beyond the maximum contribution allowed for all workers, an additional $7,500 in 2025 ($31,000 total) and $11,250 for workers age 60-63 ($34,750 total).
Other Financial Impacts
Additional Income
First and foremost, working longer provides an additional income stream in later life to: pay essential living expenses, support a more comfortable lifestyle (e.g., dining out and travel), fight back against inflation, cover unexpected expenses (e.g., home repairs and dental bills), and achieve financial goals.
Continued Retirement Savings
In addition to contributions to tax-deferred employer retirement savings plans (e.g., 401(k)s and 403(b)s) and IRAs), older workers can save earned income in taxable (brokerage) accounts, tax-free Roth accounts, and SEP-IRAs if self-employed.
Smaller Required Nest Egg
When people work longer and postpone savings withdrawals to a later age, they have fewer years in retirement and, therefore, require a smaller nest egg. There is also a longer time for invested assets to grow because there are more compounding periods.
Income in Lieu of a Nest Egg
Income from working longer or unretirement can help make up for modest retirement savings in the past. According to Federal Reserve data, the median savings of 65-74 year olds and those age 75+ are $200,000 and $130,000 respectively. Earning $40,000 of income is equivalent to withdrawing 4% of a $1 million nest egg that someone does not have ($1,000,000 x .04 = $40,000).
Self-Employment Tax Write-Offs
Solopreneurs can take tax write-offs for self-employment tax and business-related expenses. In addition, self-employed older adults can deduct Medicare Part B and D premiums (including IRMAA) for themselves and their spouse if they do not have a retiree health care plan from a former employer.
Non-Financial Impacts of Working longer
Continued work provides a source of social interaction, structured time, and a sense of purpose, especially if a job helps other people. Older workers also continue to gain knowledge and learn new skills to stay current. In addition, some studies suggest that older adults who work have better mental health and fewer depressive symptoms than those who are not working.
Final Thoughts
As life expectancy increases, more older adults are extending their careers beyond traditional retirement age to shore up their retirement plans. Whether they work due to financial need, non-financial reasons, or both, extra income can enhance someone’s lifestyle and reduce financial stress.
