As retirement nears, many Americans find themselves rethinking the traditional notion of “fully retiring.” In 2025, over 36% of working adults say they plan to retire after age 70, and 52% expect to work in some capacity during retirement, according to the Transamerica Institute Retirement Survey. The reasons range from financial necessity to staying active and mentally engaged — but one key factor looms large: the financial impact of earning while retired.

In this article, we’ll explore how working during retirement affects Social Security benefits, taxes, and lifestyle — and why proper tax preparation is essential for ensuring you keep more of what you earn.

Why Retirees Keep Working: It’s Not Just About the Money

Many retirees today view work as a lifestyle choice rather than a financial obligation. Some want to remain mentally active, pursue a passion project, or continue contributing to their communities. However, with increasing life expectancy and inflation eating away at savings, financial stability remains the top motivator.

For instance:

• A 65-year-old couple retiring in 2025 may need over $315,000 just for healthcare costs during retirement.

• Average Social Security benefits only provide about $1,850/month, often not enough to sustain one’s desired lifestyle.

Earning additional income post-retirement bridges the gap between fixed income sources and real-world expenses.

How Income Affects Social Security and Taxes

Earning income after retirement doesn’t just pad your wallet — it impacts how much of your Social Security benefits may be taxable. Here’s how it works:

• If you file as an individual and your combined income exceeds $25,000, up to 50% of your Social Security benefits may be taxable.

• If your combined income is over $34,000, up to 85% of those benefits can be taxed.

Combined income = Adjusted Gross Income (AGI) + Nontaxable Interest + 50% of Social Security Benefits

So if you’re working part-time and earning, say, $25,000/year, and receiving $22,000 in Social Security benefits, up to 85% of that $22,000 may become taxable. This is why tax planning doesn’t end when your career does — it just changes.

The Crucial Role of Tax Preparation and Having a Tax Preparer in Retirement

Retirement can bring unexpected tax challenges. Without strategic tax preparation, retirees can unknowingly bump themselves into higher tax brackets or trigger Medicare premium surcharges.

This is where having a tax preparer becomes invaluable:

• A knowledgeable tax preparer can guide you in timing withdrawals from retirement accounts (like IRAs or 401(k)s) to minimize tax hits.

• They can advise on Roth IRA conversions, which may be taxed upfront but offer tax-free growth — ideal for long-term planning.

• Tax professionals help ensure you’re not overpaying on estimated taxes if you’re self-employed or working freelance in retirement.

In essence, a tax preparer becomes not just a compliance assistant but a financial partner, helping you keep more of your retirement income.

Understanding the Self-Employment Tax Trap

Many retirees engage in freelance, consulting, or small business ventures after retiring from full-time work. While these income streams offer flexibility and satisfaction, they also come with new tax responsibilities.

Self-employed retirees are subject to the 15.3% self-employment tax, which covers Social Security and Medicare contributions. For example, earning $20,000 as a self-employed consultant could result in over $3,000 in self-employment tax alone — not including federal or state income taxes.

This makes it crucial to work with a tax professional who can help identify deductions, such as home office expenses, mileage, or business software, to reduce that tax burden significantly.

Tax-Savvy Strategies to Maximize Retirement Income

There are practical strategies retirees can use to legally reduce taxable income and increase their net earnings:

• Delay Social Security: Waiting until age 70 to claim Social Security benefits can increase monthly payouts by up to 8% annually.

• Use Tax-Loss Harvesting: If you own investments in a taxable brokerage account, selling losing assets can offset capital gains.

• Stagger IRA Withdrawals: Avoid withdrawing large lump sums that push you into a higher tax bracket. Instead, spread withdrawals across multiple years.

These methods, when guided by a tax professional, ensure you’re not leaving money on the table during your retirement years.

Retirement Doesn’t Mean the End of Tax Planning

One of the biggest misconceptions is that tax planning ends when you stop working. On the contrary, retirement is often the most tax-sensitive phase of life. Without proper planning, required minimum distributions (RMDs), Social Security, pensions, and even part-time income can create a perfect storm of taxes that erode your retirement nest egg.

This is why many financially secure retirees continue working with tax preparers annually, treating it as part of their overall retirement strategy — not just an annual filing task.

Case Study: Retiring in Pasadena, CA — and Still Working

Meet Carla, 67, who retired from her full-time marketing job in Pasadena but picked up part-time consulting work earning $30,000 annually. Her Social Security income is $20,000, and she takes small distributions from her IRA.

Without guidance, she could have faced over $5,000 in unexpected taxes due to improper withholding and self-employment taxes. However, with smart tax preparation from a local Pasadena tax expert, she:

• Shifted some consulting payments into the next tax year.

• Used deductions available to part-time self-employed workers.

• Minimized Social Security taxation by managing her AGI.

The result? Carla cut her annual tax bill by nearly 40%, allowing her to travel and enjoy retirement stress-free.

Conclusion: Smart Work, Smarter Planning

Working during retirement can be rewarding, but without strategic planning, your additional income could shrink due to avoidable tax consequences. That’s why tax preparation in Pasadena CA is essential for retirees who continue to earn.

For retirees and part-time professionals in Southern California, Tax Pacific Pros stands out as the best tax preparation company in Pasadena CA. Their expert team understands the unique needs of retirees, combining personalized advice with year-round tax support to protect your income and lifestyle.