In one aspect, a method for adjusting torque limits for a work vehicle may include controlling, with a computing device, an operation of an engine of the work vehicle such that a torque output of the engine is maintained at or below a baseline engine torque limit. The method may also include receiving, with the computing device, an input associated with a current hydraulic power requirement of a hydraulic system of the work vehicle, and adjusting, with the computing device, a torque limit for the engine from the baseline engine torque limit to an adjusted engine torque limit based on the current hydraulic power requirement of the hydraulic system. In addition, the method may include controlling, with the computing device, the operation of the engine such that the torque output of the engine is maintained at or below the adjusted engine torque limit.