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4 key financial considerations when working past age 65

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A few generations back, turning 65 was pure bliss. You were able to retire with full Social Security benefits and enroll in Medicare at the same time. If you were lucky and spent your entire career with one large employer, you may have even gotten a big sendoff and a gold watch.

But, times have changed. Many Baby Boomers are choosing to work past age 65 as company employees or are joining the gig economy. Some need the money, some love their work, and some don’t know what they would do with themselves if they didn’t have a job.

Regardless of the reason, working past 65 has financial ramifications that you need to know about. Enjoy reading about these four key financial considerations for working past age 65. If you’re younger and this information doesn’t apply to you, share the link to this article with your parents.

1. Your Social Security benefits may be reduced & taxed

If you continue to work past 65 and claim Social Security at the same time, your benefits may be reduced and taxed.

For example, in 2022, your Social Security benefits are reduced by $1 for every $2 you earn over $19,560. In the year you hit your full retirement age, you’ll get to keep more of your earned income. Your benefits then are reduced by $1 for every $3 you earn over $51,960 up to the month you hit full retirement age. After that, your benefits won’t be reduced, no matter how much you earn.

Social Security benefits cannot only be reduced; they can be taxed if you continue to work. For example, in 2022, if you file an individual tax return with a combined income (your adjusted gross income, nontaxable interest, and 50% of your Social Security benefits) of more than $25,000 or $32,000 if filing jointly, you’ll pay taxes on up to 85% or your Social Security benefits.

2. Your insurance premiums may change

If you continue to work past age 65 and have access to health insurance benefits through your employer (or your spouse’s employer), you may be able to put off enrolling in Medicare if your company has more than 20 employees. If this is the case for you, your group insurance premiums should remain the same.

If you work for a company with fewer than 20 employees, you should sign up for Medicare. When you do, after factoring in your cost for Part B and Part D and a Medicare supplement insurance policy, you may find that your monthly health insurance premiums are higher than they were under a group insurance plan.

Your cost for short-term disability and long-term disability will also increase if you continue working past age 65. You’ll want to buy individual coverage if your income from working is essential to maintain the standard of living you desire and keep you from drawing Social Security before your full retirement age or the maximum retirement age of 70, if that’s your goal.

For example, Janice turned 65 in February 2022 and continued working as a freelance marketing consultant to delay taking Social Security benefits until she hit her full retirement age of 66 1/2.

Unfortunately, Janice became ill and couldn’t continue working. Losing her $4,000 per month income as a freelancer would have derailed her plans to delay taking Social Security benefits except for one smart move Janice made when she retired — she purchased an individual long-term disability insurance policy.

After a 30-day waiting period, Janice's policy began paying her 60% of her monthly income ($2,400) and, coupled with her 401(k), was enough to allow her to continue to delay drawing Social Security. Her policy has a 2-year benefit period, which will sustain her financially and let her reach full retirement age before she taps into her Social Security benefits.

3. Your Medicare premiums will be affected

Medicare Part B and Part D are subject to the income-related monthly adjustment amount (IRMAA). Therefore, the more you earn, the higher your Medicare premiums will be.

In 2022, you’ll pay more for Medicare Part B and Part D if your modified adjusted gross income from two years ago was more than $91,000 if you file individually, or $182,000 if you filed a joint return.

4. You’ll lose your Health Savings Account with Medicare

If you have a high-deductible health plan and a Health Savings Account (HSA), you can’t continue putting money into your HSA once you’ve enrolled in Medicare. Because of the tax advantages of an HSA (pretax savings, tax-free growth, and pretax withdrawals for qualifying medical expenses), this will significantly impact your income if you continue to work past 65 and enroll in Medicare, particularly your pretax savings advantage.

The good news about working past age 65

So far, we’ve seen how costly it can be financially to continue working during your golden years, but there are some advantages to continuing working.

One advantage of continuing to work is the health benefits. While some employers worry about older workers being at a greater risk for injury or health problems and negatively affecting their group insurance rates, multiple studies have shown that working longer can positively impact brain health and longevity.

One study by the American Psychological Association concluded that retirement may be associated with cognitive decline for some individuals who are prone to “disengage from highly challenging activities and goal pursuits.”

Harvard Health has indicated that when employed, older adults are as much as four times more likely to be involved with their community, making them less isolated and happier.

Another advantage is the benefit to society and the national economy by continuing to work past age 65. Older adults are less likely to draw Social Security or enroll in Medicare by remaining employed. This benefits the Social Security system, helping it to stay solvent and be there for future generations.

Compared to the financial impact, do these advantages make it worth continuing to work past 65? For some people, it does. They value their health above their finances and believe they’ll live longer, healthier lives by staying engaged in the workforce.

For others, they don’t believe it’s worth the tradeoff. They would rather leave the workforce and avoid the negative financial ramifications of continuing to work past 65. This doesn’t mean they’re not also concerned about their health; it may simply mean they will be better off economically by not working.

Whether to continue working past age 65 is an individual decision that will vary with each person’s financial situation and health status. Meeting with a financial advisor or career counselor may aid in this important decision.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

— Published September 20, 2022
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