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Part-Time Work in Retirement Isn’t Just About Extra Income—It Can Affect Your Benefits, Too

Missy E
November 14, 2025

Key Takeaways

Working part-time after retirement can supplement your income, but it also comes with potential implications for your federal retirement benefits, including Social Security and FERS.
Earning too much from post-retirement work may trigger benefit reductions, tax consequences, or even disqualify you from certain entitlements.

The Growing Appeal of Post-Retirement Work

Many government employees find that retirement doesn’t mark the end of their productivity. Whether you want to stay active, pursue a passion, or simply supplement your annuity, part-time work can be an attractive option. But before you accept a job offer, it’s essential to understand how earning additional income could impact the benefits you’ve spent decades earning.

Social Security Has an Earnings Limit—And It Matters

If you’re receiving Social Security before reaching your Full Retirement Age (FRA), the Social Security Administration imposes an annual earnings limit. In 2025, that limit is $23,480. If you earn more than this amount, your Social Security benefit will be reduced by $1 for every $2 you earn over the limit.

The reduction only applies to benefits before FRA.
In the year you reach FRA, the reduction is less severe: $1 for every $3 earned over $62,160, up until the month you reach FRA.
Once you reach FRA, there are no earnings limits or reductions.

Even though Social Security benefits are adjusted upward later to account for withheld amounts, this could affect your income planning during the early retirement years.

FERS Annuity Supplement Ends at 62—But It’s Also Income-Sensitive

If you retired under the Federal Employees Retirement System (FERS) before age 62 and are eligible for the Special Retirement Supplement, working part-time could reduce or eliminate this benefit.

The FERS supplement is designed to bridge the income gap between retirement and eligibility for Social Security.
The same earnings test used by Social Security applies to the supplement.
If your earned income exceeds $23,480 in 2025, your supplement will be reduced by $1 for every $2 above the threshold.
The supplement stops automatically at age 62.

Because the supplement is often mistaken as a guaranteed payment, many retirees are surprised to learn it can be taken away.

Impact on FEHB and PSHB Coverage

Retired federal employees who meet the eligibility criteria can continue coverage under the Federal Employees Health Benefits (FEHB) Program or the Postal Service Health Benefits (PSHB) Program. Working part-time after retirement does not automatically end this coverage, but there are a few things you need to watch for:

If your part-time job offers group health insurance, you may need to decide whether to enroll in that plan or stay with FEHB/PSHB.
In most cases, it’s wise to retain FEHB or PSHB due to the government contribution and broad coverage, especially in retirement.
You must continue to pay your share of premiums, even if you’re earning additional income. FEHB and PSHB premiums do not adjust based on your part-time work.

It’s also important to consider whether your new employer offers a high-deductible health plan tied to a Health Savings Account (HSA). If you’re enrolled in Medicare, contributing to an HSA could trigger tax penalties.

Medicare Considerations

By age 65, most retired government employees become eligible for Medicare. Working part-time after Medicare enrollment doesn’t disqualify you, but there are several important coordination issues to keep in mind:

If your employer offers health insurance and has 20 or more employees, it becomes the primary payer, and Medicare is secondary.
If the employer has fewer than 20 employees, Medicare typically pays first.
Failure to enroll in Medicare Part B when required could result in lifelong late enrollment penalties unless you qualify for a Special Enrollment Period.

Many government retirees maintain both Medicare and FEHB or PSHB to enhance coverage and reduce out-of-pocket expenses.

Taxes Can Undermine the Value of Part-Time Income

One of the most overlooked consequences of post-retirement work is the tax implication. When you add part-time income to your annuity, Social Security, and any TSP or IRA withdrawals, it can push you into a higher tax bracket.

Key tax concerns include:

Federal income tax: All your sources of income, including wages from part-time work, are taxable.
Social Security taxation: If your combined income exceeds $25,000 (individual) or $32,000 (married filing jointly), up to 85% of your Social Security benefits may become taxable.
Medicare IRMAA: Higher income can also trigger the Income-Related Monthly Adjustment Amount, which raises your Medicare Part B and D premiums. In 2025, IRMAA thresholds begin at $106,000 for individuals and $212,000 for joint filers.

You should run the numbers or consult a tax professional to determine if part-time work might cost more than it brings in.

TSP Withdrawals Could Be Affected Indirectly

While part-time earnings won’t directly reduce your Thrift Savings Plan (TSP) withdrawals, they can influence your withdrawal strategy.

You might choose to delay TSP withdrawals, preserving tax-deferred growth.
Conversely, if your income from part-time work puts you into a higher tax bracket, it may make sense to withdraw less from TSP that year.
If you’re over age 73, Required Minimum Distributions (RMDs) still apply, and working does not exempt you.

Proper coordination of your earnings and withdrawal strategy is key to minimizing tax consequences.

Pension Reemployment Rules for Government Work

If you’re considering returning to federal or state service in a part-time capacity, reemployment rules will come into play.

Most reemployed annuitants continue to receive their pension but do not accrue new retirement benefits.
Your salary may be offset by the amount of your annuity, depending on the agency and position.
Some positions offer waivers of the annuity offset, but this is the exception, not the rule.
If you’re reemployed under FERS, your earnings are still subject to the annual earnings test if you’re under age 62 and receiving the supplement.

Federal retirees who are rehired in contractor roles may not face the same restrictions but could lose some of the benefits associated with federal employment.

State and Local Government Pensions May Have Their Own Rules

If you worked under a state or municipal retirement system, you’ll want to check local regulations before pursuing post-retirement work.

Some pensions suspend benefits if you return to work for the same public employer.
Other systems allow limited reemployment for a fixed number of hours per year (e.g., 960 hours).
Your benefits might be recalculated or reduced based on earnings from post-retirement employment.

Review your state or local retirement rules in detail to avoid unintentional penalties.

Planning Is Key to Avoiding Benefit Surprises

A part-time job may seem harmless, but the cumulative effect on your retirement picture can be significant. You need to consider not only the income but also the ripple effects it may cause across your entire retirement benefit structure.

Steps you should take before accepting part-time work:

Calculate the impact on your Social Security or FERS supplement.
Estimate additional tax liabilities.
Evaluate how employer-provided insurance might affect your FEHB/PSHB or Medicare.
Consider the effects on your long-term TSP withdrawal strategy.

This proactive approach helps ensure that your decision to work part-time enhances your retirement security rather than undermines it.

Smart Decisions Make Retirement More Secure

Retirement today is more flexible than it’s ever been, but flexibility doesn’t mean freedom from consequences. Part-time work can bring personal and financial rewards—but only if you go in with your eyes open. Understanding how each piece fits together, from Social Security to Medicare, from annuity supplements to taxes, is essential.

If you’re unsure how post-retirement employment could affect your benefits, it’s wise to get a personalized review. Speak with a licensed agent listed on the website to get clarity on your unique situation and help you structure your retirement plans intelligently.