4 Things You Should Know About Working Past 65

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Continuing to work past the traditional retirement age gives many the opportunity to add more money to their nest egg — and delay Social Security, which will bump up their eventual benefits check. In May, 21.9% of Americans ages 65 and older were working, compared with 19.5% in May 2020, according to a study released in June by MagnifyMoney, which analyzed U.S. Census Bureau Household Pulse Survey data.

It’s important to know how working affects your Medicare benefits, Social Security and tax situation. Here are some things to understand about staying in the workforce later in life.

You may be able to delay Medicare enrollment

If you’re still working at 65 and have access to health benefits through your employer — or your spouse’s employer — you may be able to delay enrolling in Medicare. If your company has fewer than 20 employees, you should sign up for Medicare, but if it has 20-plus employees, you may be able to put it off.

If you have the choice, compare what you would pay for group benefits with what you’d pay for Medicare, including any supplemental coverage and prescription drug benefits. “If the group coverage is less, then it may make sense to not get Part B and wait until you retire,” says Julie Hall, a certified financial planner in Ann Arbor, Michigan. (Part A is free for most people, so there’s no point in delaying that unless you have an HSA — more on that below.)

Contact your benefits department before delaying to make sure your employer doesn’t require you to enroll in Medicare.

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An HSA and Medicare don't mix

If you have a high-deductible health plan along with a health savings account, or HSA, be aware that you can’t save to an HSA once you’ve enrolled in Medicare. An HSA can be a valuable retirement savings tool, so it’s worth weighing your options if you have access to employer benefits that allow you to delay Medicare.

“I see [an HSA] as a triple tax benefit,” says Diane Pearson, a CFP in Wexford, Pennsylvania, about the fact that money can be saved pretax, grow tax-free and be withdrawn pretax to pay for eligible medical expenses.

If you’re collecting Social Security, you’ll be automatically enrolled in Medicare Part A when you turn 65; if you want to save to an HSA, you’ll have to delay Social Security benefits. If you plan to enroll in Medicare and you have an HSA, both you and your employer should cease contributions at least six months before you apply for Medicare to prevent tax headaches.

Your earnings affect your Social Security payments

If you claim Social Security during the last few years of your working life, your income can affect your benefits.

For instance, in 2023, your Social Security benefits will be reduced $1 for every $2 you earn over $21,240. In the year you hit your full retirement age, the calculations are different: Your benefits are reduced $1 for every $3 earned over $56,520 up to the month before the one you hit full retirement age. Once you reach full retirement age, there’s no benefit reduction, no matter how much you earn.

Additionally, your Social Security benefits may be taxed. People filing an individual tax return with a combined income of more than $25,000 or filing jointly with a combined income of more than $32,000 will pay taxes on up to 85% of their Social Security benefits. (Social Security defines “combined income” as the total of your adjusted gross income, nontaxable interest and half of your Social Security benefits.)

“It doesn’t take a whole lot of income to get people to the point where they pay tax on a portion of their Social Security,” says Barbara O’Neill, a CFP in Ocala, Florida.

Your income affects your Medicare premiums

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

In 2023, you’ll pay more for Part B and Part D if your modified adjusted gross income from two years ago was more than $97,000 as a single tax filer or more than $194,000 if you filed jointly. The extra costs can add up, and experts recommend factoring this into your work plans.

“People might say, ‘I’ll work, but I can only earn so much,’” O’Neill says. “You’ve got to be careful of triggering the IRMAA.”

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Medicare Advantage is an alternative to traditional Medicare offered by private health insurers. It covers the same benefits as Medicare Part A and Part B.