Does it make sense to continue working if I take Social Security’s early retirement option?
If you are planning on early retirement, you should carefully consider how much a return to even part-time work will actually cost you. You will already be looking at reduced benefits because you retired early. If you return to work and exceed the income threshold, you will see your benefits reduced still further (although the SSA recalculates the Social Security benefit of early retirees who have excess income when those retirees reach full retirement age). Not only will your excess income reduce your Social Security benefit, but you will pay tax on the income as well, and the extra income may mean that more of your Social Security benefits will be taxed. You may even wind up, ironically enough, paying Social Security tax on your earned income. This means that your decision to return to work could result in an effective marginal tax rate of 50, 80 or even 100 percent!
