5 Benefits of Working Past Age 65
For many people, age 65 is the “magic number” for retirement. A big reason for that is Medicare eligibility begins at age 65. Years ago, 65 was also the full retirement age for Social Security, but that has since increased to between 66 and 67, depending on the year you were born.
While retiring at 65 may make sense for some, there are also several potential benefits to working beyond age 65. In this article, we’ll cover five reasons why delaying retirement may improve your financial flexibility, retirement income, and overall long-term plan.
1. You Can Continue Saving for Retirement
One major benefit of working past age 65 is that it gives you more time to save.
If you continue working, you may be able to keep contributing to your:
401(k)
403(b)
Other employer-sponsored retirement plan
If your employer offers a match, continuing to work also allows you to keep receiving that additional employer contribution.
Working longer can help in two ways:
You have more time to accumulate savings.
You shorten the number of years your portfolio needs to support you.
This can be especially helpful if you got a late start on retirement planning.
If you’re eligible for a pension, working longer may also increase your future benefit. For example, some state pension systems and federal pensions, such as FERS, calculate benefits partly based on years of service. The longer you work, the higher your pension benefit may become.
2. You May Be Able to Delay Social Security
Working past 65 may also make it easier to delay Social Security.
For many retirees, it often makes sense to wait at least until full retirement age to claim benefits. For others, delaying until age 70 may provide even more value.
For every year you delay collecting Social Security beyond your full retirement age, up to age 70, your benefit increases by approximately 8% per year.
For example, if your full retirement age is 67 and you wait until 70, your benefit may be about 24% higher.
Delaying can be especially valuable for married couples, particularly when the higher-earning spouse delays. A larger benefit may also mean a larger survivor benefit for the surviving spouse later.
Working longer can make delaying Social Security easier because you still have employment income coming in while your future Social Security benefit continues to grow.
It can also help if you do not yet have 35 years of work history. Social Security is calculated using your highest 35 years of earnings. If you have fewer than 35 years, zeros are included in the calculation. Working longer may replace those zeros—or lower-earning years—with higher-earning years.
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3. You May Be Able to Keep Contributing to an HSA
Health Savings Accounts, or HSAs, can be one of the most tax-efficient savings tools available.
An HSA offers three major tax advantages:
Contributions may be tax deductible.
Growth is tax deferred.
Withdrawals are tax-free when used for qualified medical expenses.
However, once you enroll in Medicare, you can no longer contribute to an HSA.
Many people enroll in Medicare at age 65, but if you are still working and covered by a qualifying employer health plan, it may make sense to delay Medicare enrollment and continue contributing to your HSA.
This requires careful planning. Medicare Part A is often premium-free, but enrolling in any part of Medicare generally makes you ineligible to contribute to an HSA. Medicare Part B also has a monthly premium, which may be more expensive than your employer-sponsored coverage.
Before enrolling in Medicare while still working, compare:
Your employer plan premiums
Medicare Part B premiums
Prescription drug coverage
Out-of-pocket costs
Whether you want to keep contributing to an HSA
A financial advisor or Medicare insurance professional can help you evaluate which option makes the most sense.
4. Working Longer Can Help Pay for Travel
Many people plan to take their biggest trips in retirement. Maybe that means visiting another country, taking a long cruise, or spending more time traveling with family.
But if you take some of those trips while you’re still working, you may be able to pay for them from current income instead of drawing down your retirement portfolio.
That can help reduce the strain on your investments.
It may also allow you to enjoy travel while your health is still good. Unfortunately, health can change unexpectedly, and some retirees wait too long to take the trips they’ve always wanted.
Working a little longer—or using vacation time while still employed—may help you enjoy those experiences without creating as much pressure on your retirement assets.
Listen to: The Unforeseen Costs of Aging In Place
5. Working Can Help Keep You Active
Continuing to work can also provide non-financial benefits.
Work can help you:
Stay mentally engaged
Maintain a routine
Stay socially connected
Keep your mind sharp
Feel a continued sense of purpose
Staying active and engaged is an important part of aging well.
That said, not all jobs are healthy to continue. If your work is causing excessive stress, poor sleep, or burnout, working longer may not be the best choice.
In that case, you might consider:
Reducing your hours
Moving to part-time work
Consulting
Switching to a less stressful role
Starting a second-act career
Before leaving a job, especially later in your career, it’s wise to think carefully. Finding new work can become more difficult as you age, so having a plan before making a transition is important.
Final Thoughts
Working past age 65 is not right for everyone. But for some people, it can provide meaningful financial and personal benefits.
To recap, working longer may help you:
Save more for retirement
Delay Social Security
Continue contributing to an HSA
Pay for travel from current income
Stay mentally and socially engaged
Before making the decision to retire, take the time to understand how working one, two, or even five more years could impact your retirement plan.
A few additional years of work may significantly improve your financial flexibility and help you enter retirement with greater confidence.
As always have a wonderful day,
a better weekend,
and I look forward to writing to you next Friday!