Avoiding Common Errors

Earning extra money in retirement seems straightforward, but it carries specific financial implications that can catch you off guard.

The Social Security Earnings Test
If you claim Social Security benefits before reaching your Full Retirement Age (FRA) and continue to work, you face an earnings limit. The Social Security Administration (SSA) deducts $1 from your benefit payments for every $2 you earn above the annual limit. While these withheld benefits are recalculated and added back to your monthly check once you reach FRA, the temporary reduction can disrupt your monthly cash flow. If you are already at or past your FRA, you can earn as much as you want without any penalty to your benefits.

Underestimating Self-Employment Taxes
If you work as a freelancer, consultant, or independent gig worker, you are classified as an independent contractor (receiving a 1099-NEC form). This means your employer does not withhold taxes from your paycheck. You become responsible for both the employee and employer portions of Medicare and Social Security taxes—known as the self-employment tax. Always set aside roughly 25% to 30% of your gig income in a separate account to cover your quarterly estimated tax payments.