Retirees Are Heading Back to Work, and It Could Affect Their Social Security Benefits

Workers may fantasize about the day they can trade their office chair for a beach lounger, but a new study may make them rethink whether they want to fully retire at all.

Millions of retirees returned to the workforce after COVID-19’s mass retirement surge — and not necessarily for the money, according to a report from investment management firm T. Rowe Price. In a survey that included roughly 1,100 retirees, researchers found that about 20% are working either full- or part-time, a decision that they say benefits them more than just financially.

Why retirees are going back to work

COVID-19 led to a huge increase in retirements in 2020 and 2021: The Federal Reserve of St. Louis found that there were over 2.4 million "excess retirees," or people who retired who weren't predicted to, as of August 2021.

But since then, millions of Americans who identify as retired have re-entered the workforce or decided to start looking for work. In addition to the 1 in 5 retirees who told T. Rowe Price they were working full- or part-time, 7% said they were searching for a job.

While about half (48%) of people working in retirement said they needed to for financial reasons, almost as many (45%) said they went back to work for the social and emotional benefits. The report found that most retirees polled wanted to keep working in some capacity.

In fact, more respondents overall said they wanted to work than those who said they “had to.” That was especially true for respondents with household assets under $50,000: 28% said they wanted to work versus 18% who said they had to work.

There's a gender gap among unretirees, too. Forty-nine percent of women said they returned to the workforce because they needed the money versus 41% of men. Thirty-four percent of men said they needed social connection compared to a quarter of women who said the same.

How working longer impacts retirement income

T. Rowe Price’s study shows that returning to work or delaying retirement — even for just a few years — can have major payoffs when it comes to extending the life of retirement assets.

According to the report’s calculations, a 62-year-old (the minimum age Americans can claim Social Security) who earns $100,000 a year, has $900,000 in retirement savings and expects to spend $63,000 annually has a 68% chance of not outliving their retirement funds if they retire in 2023.

Delaying retirement until age 65, though, vastly increases the probability that the retiree won’t outlive their assets to 91%. Waiting until the full retirement age of 67 increases their chances to 97%.

“The improvement in this hypothetical scenario illustrates how higher Social Security payments result in better portfolio sustainability over a retirement horizon that could last decades,” Judith Ward, thought leadership director for T. Rowe Price, says in the report.

Waiting to claim Social Security benefits can have a positive impact on the amount retirees receive. Benefits increase 8% for every year retirees wait to claim past the full retirement age up to age 70, according to the Social Security Administration. However, deciding to return to work after claiming Social Security before reaching the full retirement age can decrease benefits.

If a retiree claims benefits before turning 67 and chooses to go back to work, they can essentially pay back what they received by applying for a withdrawal of benefits within 12 months, and the government will consider them as never having claimed benefits. Those who return to work and are at least 67 but not yet 70 can suspend payments and earn delayed retirement credits, which will boost their monthly benefit when they do retire.

The report says that working before the full retirement age while claiming benefits can also lower benefits due to income limitations. For example, if a retiree who chooses to work exceeds the 2023 earned income limit ($19,560 a year), their benefits will go down $1 for every $2 they earn above the limit.

But once a retiree reaches age 67, they can choose to go back to work without their Social Security payments being affected.

In fact, if a retiree has additional years when they earned a high income, it could actually increase their benefits because they’re based on workers’ best-paid years. If the retiree earns more money one year after returning to work than they did prior to retirement, that year would be factored into the benefits calculation instead of the lower-earning year.

All said, waiting until full retirement age or later to claim benefits may be more advantageous for retirees who work, according to the report.

More from Money:

Will Social Security Benefits Really Get Slashed by 23% in the Next Decade?

Americans Say They’ll Need $5,000 a Month to Retire Comfortably

Missouri Will No Longer Tax Social Security Benefits, but These 11 States Still Do