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Many Americans expect to need extra income in retirement beyond their savings or Social Security benefits. According to research by Western & Southern Financial Group, 38% of Baby Boomers earn or expect to earn most of their retirement income from a side hustle, rather than from traditional savings.
If you plan to keep working in retirement, it’s important to know the legal and tax implications of starting a business. Whether it’s your primary source of income or a way to boost your savings, your side hustle can have a big impact on your monthly spending.
Key Takeaways
- A side hustle can be a hobby that you monetize, such as a craft, gardening, or dog walking. It can also be a professional skill, such as bookkeeping or tutoring.
- If you start a side hustle, treat it like a business by obtaining any necessary permits or licenses, as well as paying estimated taxes throughout the year.
- If you have started Social Security benefits, income from a side hustle can lower your monthly benefit before you reach full retirement age.
Choosing a Side Hustle in Retirement
A side hustle is a business that you start and manage yourself, generally setting your own hours and deciding how much work you want to take on at any given time. Unlike starting a traditional small business, the goal of a side hustle isn’t to earn a full-time income. In retirement, a side hustle can provide additional income on top of your other sources, such as Social Security, retirement accounts, pensions, or annuities.
To start a side hustle, you can look at hobbies or activities that interest you and find ways to monetize them. For example:
- Offering gardening, home repair, decluttering, or decorating services
- Creating custom craft pieces on commission, such as quilts or scrapbooks
- Refinishing furniture and selling it on Facebook Marketplace, Instagram, or Etsy
- Babysitting, pet sitting, or dog walking for local families
If you don’t want to monetize a hobby, you can also leverage your existing skills or professional certifications. For example:
- Freelance digital services, such as website setup or graphic design
- Business services, such as bookkeeping, editing, or transcribing
- Coaching or classes on professional topics, either in person or online through services like Skillshare
- Tutoring students one-on-one in topics like languages, math, or writing
Steps to Start a Side Hustle in Retirement
Even though the goal of a side hustle isn’t to earn a full-time income, you should still take the process of starting one seriously so that you don’t waste time or money on an idea that you haven’t thought through. Choose a side hustle that doesn’t require expensive training or setup to keep your costs low.
To get started, you will need to:
- Write a business plan that outlines what services you will offer, who your customers will be, how you will find them, and any start-up costs you will need to cover.
- Choose a business structure and name, if necessary.
- Secure any licenses, memberships, or permits to operate legally. Many localities require all businesses to register and pay for a business license if you’re doing anything more than casual babysitting.
Important
The licenses and permits you will need will depend on the type of business you are offering. You may need a sales tax license if you are selling goods or a professional license if you are offering services like bookkeeping or hairstyling. However, for many side hustles, you might not need any licenses and permits. Visit your Secretary of State’s website to find out what type of licenses or permits you will need, if any.
- Set up a separate checking account for your business. Use this account to deposit side hustle income and pay any business expenses so you can keep track of your cash flow and taxes.
- Buy any insurance that you will need, such as liability insurance, to protect you from legal risks.
- Find your customers. Begin by offering your services to friends or neighbors, then ask them for referrals to find new customers. Or, if you choose a side hustle that requires online selling, utilize preexisting websites like Etsy or Instagram to minimize both costs and set-up time.
Tax Considerations
If you are working a part-time job as an employee, you’ll receive a W-2, which means taxes will be withheld from your paycheck. If you start a side hustle, however, that will be considered self-employment income, and you will be responsible for paying estimated taxes on what you earn.
Estimated tax payments cover both your income tax and your self-employment tax. You must pay tax as you earn income throughout the year if you expect to owe $1,000 or more when your tax return is filed. If you fail to pay estimated tax throughout the year, you may owe a penalty in addition to your tax payment when you file your income tax return in April.
You can use the Form 1040-ES worksheet to calculate your estimated tax payment each quarter. Each year, estimated taxes are due on:
- April 15, for income earned Jan. 1-March 31
- June 15, for income earned April 1-May 31
- Sept. 15, for income earned June 1-Aug. 31
- Jan. 15 of the following year, for income earned Sept. 1-Dec. 31
Fast Fact
Depending on where you live, you may also have to pay estimated tax at the state level.
If you are unsure how to manage estimated tax payments, talk to an accountant before starting a side hustle in retirement. Working with a professional to understand when to make your payments and how much to pay can help you avoid fees and penalties in the long run.
How a Side Hustle Impacts Social Security
You can work in retirement and still receive Social Security benefits, but how much you earn from your side hustle can impact how much you receive. If you earn more than certain limits, part of your benefits can be deducted until you reach full retirement age. In 2025:
- If you are under full retirement age, $1 in benefits will be deducted for every $2 you earn over $23,400.
- If you will reach full retirement age this year, $1 in benefits will be deducted for every $3 you earn over $62,160.
Only earnings up to the month you reach full retirement age are counted, not earnings after that point. Once you reach full retirement age, earning additional income no longer reduces your benefits, no matter how much you earn. Your benefits will also be recalculated to give you credit for any months when your benefits were reduced or withheld due to excess earnings.
Fast Fact
Your Social Security benefits will only be reduced based on net income from your side hustle. Your benefits won’t be reduced if you have other income from retirement accounts, annuities, pensions, interest, veteran’s benefits, investments, or other government/military benefits.
The Bottom Line
Nearly two-thirds of Americans expect to rely on multiple sources of income in retirement, and more than a third expect a side hustle to be their primary source of income, rather than retirement accounts or Social Security benefits. If you’re one of them, be sure you understand the legal and tax requirements of having a side hustle, including which permits and licenses you will need and how to pay estimated taxes.
It’s also important to know how it impacts your Social Security benefits. Before you reach full retirement age, income from a side hustle can reduce your monthly benefit. However, there is no impact on your monthly benefit once you reach full retirement age, no matter how much income you earn.
