Financial planning aspects of unretiring

By Sonja Pippin, CPA, Ph.D. for Journal of Accountancy
January 27, 2025

After the "Great Resignation" that occurred when a large number of people quit their jobs during the COVID-19 pandemic, many individuals "unretired." The term is generally defined as returning to the workforce after having officially retired from it. The purpose of this article is to discuss important financial planning issues for unretired individuals. It should help CPAs and financial planners to address client questions about the pros and cons of unretiring.

Motivations to unretire

When discussing unretirement, advisers need to understand their clients' motivations. According to a recent study, people who unretire list several factors that lead to this decision, the most important being financial, social, and emotional.

Because finances are often the top reason, most retirees who consider reentering the workforce need to ask questions such as:

How does unretiring affect Social Security benefits and retirement accounts?
How does age affect Social Security and retirement accounts?
What kind of tax consequences should be considered when unretiring?

Social Security considerations

One of the main advantages of unretiring is that it may translate into a permanent increase in future Social Security benefits. Currently, most individuals are eligible to collect Social Security starting at age 62 at a reduced benefit level. When they reach full retirement age (FRA), between 66 and 67, depending on their birth year, they can begin receiving full retirement benefits. However, one can delay the benefit payment even further to earn delayed retirement credits for each month the benefits are suspended. The formula to compute Social Security benefits is quite complex. Some individuals who meet certain requirements can also collect benefits for their spouses, divorced spouses, and dependents.

The earnings test: While one can unretire and continue collecting Social Security, earning wages or self-employment income before reaching full retirement age may result in benefits being withheld, if earned income exceeds a threshold amount. In the years before FRA, benefits are reduced by $1 for every $2 above the threshold ($23,400 in 2025), and in the year of reaching FRA, the reduction is $1 for every $3 above a higher threshold ($62,160 in 2025). Benefits stop being withheld as of the month when reaching FRA. The reductions based on earned income are only temporary, as the individual's benefit amount ultimately will be recalculated to give credit for the months that benefits were withheld due to excess earnings.

Possible increased taxes: Another potential unpleasant consequence of earning income from employment while collecting Social Security benefits is that up to 85% of the benefits may be taxable. For taxpayers filing a federal return as single, head of household, or qualifying surviving spouse with combined income of between $25,000 and $34,000 (for taxpayers filing married filing jointly, $32,000 to $44,000) up to 50% of the benefits are taxed. For taxpayers filing single, head of household, or qualifying surviving spouse with combined income of more than $34,000 (or $44,000 for taxpayers filing married filing jointly), up to 85% of the Social Security benefits are taxed.

Combined income is the sum of one-half of the taxpayer's Social Security benefits (or of both married taxpayers filing jointly) and modified adjusted gross income (MAGI).

For these purposes, MAGI is adjusted gross income, increased by tax-exempt interest received or accrued and determined without regard to:

Social Security benefits;
The student loan interest deduction; and
The exclusions for foreign earned income and housing costs, savings bond interest used to pay qualified higher education expenses, employer-provided adoption benefits, and income earned by bona fide residents of certain U.S. possessions including American Samoa and Puerto Rico.

Ability to delay Social Security benefits: On the positive side, unretiring can enable a client to apply for Social Security benefits later in life. Waiting beyond FRA leads to increased benefit payments due to the delayed retirement credits mentioned above. For anybody born after 1943, each additional month past FRA up to reaching age 70 results in one-twelfth of 8% additional Social Security monthly benefit.

Example 1: Nora just turned 68 and will retire by the end of the year. She did not collect any Social Security during the past year. By the time of her retirement, she will have been employed 16 months past her FRA of 67. Her payment will therefore increase by 10.67% (8% × 1/12 × 16).

Withdrawing a Social Security application: Unretired individuals who have already started collecting Social Security should explore the possibility of withdrawing their Social Security application for the tax and benefit-delay advantages discussed above. Those who retired early (between early eligibility age and FRA) can do so within 12 months of the benefit approval. Note that withdrawing the application can only be done once and requires repaying all benefits the individual and family received (including money withheld for Medicare premiums).

To withdraw the application, use Form SSA-521, Request for Withdrawal of Application. Individuals should include the reason for withdrawing the application. Individuals who are earning enough and unretire within the necessary 12-month time frame will often gain in the long run from such a move. For example, if someone who retired early at age 62 unretires, withdraws their application for Social Security within the 12-month period, and then does not reapply until age 70, benefits increase by 30% (no reduction in benefits) + 24% (three years' worth of delayed retirement credits).

Example 2: Mara retired at age 64 early and started collecting Social Security. Seven months after receiving her first check, she received an offer from her prior employer to return to work part time. Her financial adviser encouraged her to withdraw her application for Social Security payments to receive higher benefits later. She withdraws her application using Form SSA-521. Because she already received seven months of Social Security benefits, she will have to repay the Social Security and the money withheld for Medicare premiums.

Voluntarily suspending Social Security benefits: There is also another way to pause Social Security benefits. Specifically, individuals who have already reached FRA and are unretiring can voluntarily suspend benefits at any time before reaching age 70 and will receive delayed retirement credits based on the number of months for which Social Security benefits are suspended. The benefits will restart automatically at age 70 — but it is also possible to restart them earlier than that.

Effects on retirement accounts

So far, this discussion has focused on Social Security, but what about retirement accounts such as IRAs and 401(k)s? By unretiring and waiting to touch these retirement accounts until later (and, at the same time, letting the investments grow), individuals will have more retirement savings available when eventually leaving the workforce. In addition, because the SECURE 2.0 Act (Division T of the Consolidated Appropriations Act, 2023, P.L. 117-328) increased the required minimum distribution (RMD) age to 73 starting Jan. 1, 2023, and 75 starting Jan. 1, 2033, individuals returning to the workforce can now let their retirement savings grow longer before having to worry about RMDs.

The SECURE 2.0 Act also increased catch-up contribution limits. Most notably, for individuals between ages 60 through 63, the catch-up contribution limits for applicable employer plans (other than SIMPLE 401(k)s and SIMPLE IRAs) are increased starting in years beginning after Dec. 31, 2024, to the greater of $10,000 (indexed for inflation beginning in 2026) or 150% of the regular catch-up amount for individuals age 50 or older. For 2025, the increased limitation amount is $11,250. Again, being able to contribute more and longer (and letting the investments in the retirement accounts grow longer) means that individuals who decide to unretire can accumulate more in their retirement accounts for the time when they leave the workforce for good.

Bottom line

Many people who unretire do so for financial and economic reasons. Individuals who can afford to withdraw their Social Security application or voluntarily suspend their payments should do so to increase their future benefits. They should also keep in mind the other financial considerations discussed above.

Although most people do not want to think about death, it does make sense to include life expectancies (of oneself, spouse, and other dependents) and health concerns when making the decision to unretire. Returning to work only makes sense in the long run if it ultimately leads to a more fulfilled and happier life.

— Sonja E. Pippin, CPA, Ph.D., is a professor of accounting at the University of Nevada, Reno. To comment on this article or to suggest an idea for another article, contact Dave Strausfeld at David.Strausfeld@aicpa-cima.com.