Common Mistakes to Avoid

Earning extra money during retirement is empowering, but failing to plan for the administrative side of your new income can lead to financial penalties.

Ignoring the Social Security Earnings Limit
If you claim Social Security benefits before reaching your Full Retirement Age (FRA) and continue to work, you are subject to the earnings test. If your earned income exceeds the annual limit set by the Social Security Administration, your benefits will be temporarily reduced. Once you reach your FRA, this limit disappears entirely, and you can earn as much as you want without penalty. Always check the current year’s threshold before taking on significant hours.

Underestimating Self-Employment Taxes
When you work as a W-2 employee, your employer splits the cost of Medicare and Social Security payroll taxes with you. When you work as an independent contractor or freelancer, you are responsible for the entire portion—commonly known as the self-employment tax. Set aside approximately 25% to 30% of your gig income in a separate savings account to ensure you can cover your obligations to the Internal Revenue Service when tax season arrives.

Falling for Employment Scams
Unfortunately, scammers actively target older adults seeking remote work. Be highly suspicious of any “employer” that requires you to pay upfront for training, asks you to purchase expensive equipment from a specific vendor, or sends you a check to deposit and wire back. Legitimate platforms and clients will never ask you to pay to work. Consult resources from the Consumer Financial Protection Bureau to stay updated on common employment fraud tactics.