Working Past Age 65

There are certainly financial advantages to continuing to work after age 65; you can continue to save for retirement with more time for your savings to grow before you begin withdrawals, and the number of retirement years you need to pay for will be shorter. But it’s important to avoid hurting your retirement finances.

Enroll in Medicare as soon as you’re eligible.

It’s important to enroll in Medicare at the right time, even if you’re still working and don’t need the coverage yet. Your first enrollment opportunity is during a seven-month period that begins three months before the month you turn 65. If you don’t sign up during this initial enrollment period, there may be penalties; your monthly Part B premiums may increase by 10 percent for each 12-month period you were eligible for Part B but didn’t claim it unless you’re covered by a group health plan based on your or your spouse’s current employment.

If you do have such coverage, you may avoid Medicare’s late enrollment penalty by signing up for Medicare while you’re still covered by the group health plan, or within eight months of leaving the job or the coverage ends. Be aware that COBRA coverage and retiree health plans are not considered coverage based on current employment for the purposes of avoiding the late enrollment penalty.

Other penalties to avoid

There is a late enrollment penalty that is applied to Medicare Part D premiums if you don’t sign up when you are first eligible, or if you or go63 or more days in a row without prescription drug coverage. Please see the Guide to Creditable Coverage.

Also, an open enrollment period for Medicare Supplement plans (Medigap) begins the month you’re first enrolled in Part B, during which you may purchase coverage without health underwriting. After that, if you have less than excellent health, you could be denied the option to buy a Medigap policy or it could cost significantly more.

Social Security considerations 

Continuing to work after age 65 is usually good for increasing your Social Security payments. Most people turning 65 now aren’t eligible for unreduced Social Security payments until age 66, and for people born in 1960 or later, the full retirement age is 67. For each year you delay claiming, up until age 70, your Social Security benefits increase 8%. There is no additional increase for waiting beyond age 70.

Note, however, that if you decide to sign up for Social Security benefits before your full retirement age while you are still working, part or all of your payments could be temporarily withheld. If you’re a Social Security beneficiary younger than your full retirement age, you may have $1 in benefits withheld for every $2 you earn above $18,960 (in 2021).

In the year you reach full retirement age, Social Security will deduct $1 in benefits for every $3 you earn above a different limit, but only earnings before the month you reach your full retirement age count

If you will reach full retirement age in 2021, the limit on your earnings for the months before full retirement age is $50,520.

Starting with the month you reach full retirement age, you can get your benefits with no limit on your earnings, and Social Security payments are recalculated to give you credit for any withheld benefits.

Required minimum distributions

Typically, withdrawals from individual retirement accounts are required after age 70½, and income tax will be due on withdrawals from traditional retirement accounts. However, if you are still working and don’t own 5 percent or more of the company you work for, you can continue to delay withdrawals from the 401(k) associated with your current employment until April 1 of the year after you retire, if the plan allows it.

However, note that withdrawals from IRAs and 401(k)s from previous employers will still be required, and there’s a steep 50 percent tax penalty if you fail to withdraw the correct amount. Also, after age 70½, traditional IRA contributions are no longer eligible for a tax deduction.

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