Want to Work Past Age 65? Here's What to Watch Out For

Businesswoman sitting at desk in office portrait
Thomas Barwick/Getty ImagesYour freedom isn't the only thing you may be hindering by continuing to work your 9-5 after age 65.
By Emily Brandon

Continuing to work after age 65 can certainly help your retirement finances. You can continue to save for retirement, your existing savings will have more time to grow before you begin withdrawals and the number of retirement years you need to pay for will be shorter. But there are a few ways employment after age 65 can hurt your retirement finances. Take care to avoid these problems when working after age 65.

Signing up for Medicare. It's important to sign up for Medicare at the correct time, even if you are still working and don't need the coverage yet. You can first claim Medicare benefits 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, 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.

However, if you are covered by a group health plan based on your or your spouse's current employment after age 65, you can avoid Medicare's late enrollment penalty if you sign up anytime you're still covered by the group health plan or within eight months of leaving the job or the coverage ending. "If you are currently working when you become entitled to Medicare, you don't have to sign up for Part B if you have group-sponsored coverage through your employer or if your spouse does," says Juliette Cubanski, a Medicare policy analyst at the Kaiser Family Foundation. "If you don't sign up for Part B when you are either first entitled or when you first don't have other coverage, you will be subject to a late enrollment penalty." COBRA coverage and retiree health plans are not considered coverage based on current employment for the purposes of avoiding the late enrollment penalty.

There's also a late enrollment penalty that is applied to Medicare Part D premiums if you don't sign up when you are first eligible or go 63 or more days in a row without prescription drug coverage. And a Medigap open enrollment period begins the month you're first enrolled in Part B, after which you could be denied the option to buy a Medigap policy or it could cost significantly more.

Impact on Social Security. Continuing to work after age 65 is typically good for your Social Security payments. Most baby boomers 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. Payments further increase by 8 percent for each year you delay claiming up until age 70. "It can work in your favor to delay benefits in order to maximize the Social Security benefit that you will receive," says Jim Blankenship, a certified financial planner for Blankenship Financial Planning in New Berlin, Illinois, and author of "A Social Security Owner's Manual." After age 70, there is no additional increase for waiting to claim your Social Security payments.

However, 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. Social Security beneficiaries who are younger than their full retirement age will have $1 in benefits withheld for every $2 they earn above $15,720 in 2015. Retirees receiving Social Security payments who will turn 66 in 2015 can earn up to $41,880, after which one benefit dollar will be withheld for every $3 earned above the limit. However, once you turn full retirement age, you can earn any amount without having your benefit withheld, and Social Security payments are recalculated to give you credit for any withheld benefits.

Required minimum distributions. Withdrawals from individual retirement accounts typically become 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. "When you turn 70½, if you are still working for an employer, you have a 401(k) and assuming that you don't own 5 percent or more of the company, you can still delay taking money out of the 401(k)," says Howard Hook, an accountant and certified financial planner for EKS Associates in Princeton, New Jersey. However, 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. Additionally, retirement savers age 70½ and older are no longer eligible for a tax deduction if they make traditional IRA contributions.

-Emily Brandon is the senior editor for Retirement at U.S. News. You can contact her on Twitter @aiming2retire, circle her on Google Plus or email her at ebrandon@usnews.com.

11 Ideas for Your Retirement Travel Bucket List
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Want to Work Past Age 65? Here's What to Watch Out For
The Earth has 370,000 miles of coastline with some amazing spots to walk along the beach, listen to the waves crash and relax -- or even party. In the U.S., you can choose among hundreds of Atlantic coast towns: the quiet of Cape Cod; the wide expanses and soft white sand along the Jersey shore, the dunes in North Carolina, or the high energy of Miami Beach. On the West coast, there are the hipster cool California beaches of Newport and Venice Beach, and the serenity of Oregon's Cannon Beach, which holds a sand-castle contest every June. And if the thousands of beaches on the continent aren't enough, you can hop over and take surfing lesson on Waikiki Beach in Hawaii or go windsurfing in Maui.
Providenciales in the Turks and Caicos won the 2014 Travelers' Choice award from TripAdvisor.com for its diving and snorkeling along the miles of accessible coral reefs. Other popular Caribbean destinations include the U.S. Virgin Islands, Barbados and the Cayman Islands. These are all year-round destinations, although many experts say the spring is the best time.
Is there anything more romantic than a relaxing week, watching the sun set from your private hut in the French Polynesian island of Bora Bora? Been there? Done that? How about the honeymoon hotspots of Tahiti or Fiji or the 115 islands of the Seychelles in the Indian Ocean? Check out Australia's Dunk Island rainforest, or get to the Maldives while you still can. Some climate experts warn that it could be the first nation to disappear due to climate change.
There are far more than seven natural wonders in our world, but that list is not a bad place to start. You can see the Grand Canyon, the Great Barrier Reef off the coast of Australia and Mount Everest. There's also the dramatic natural scenery along the Swiss Alps as well as 59 U.S. national parks, including the classic (Yosemite, Yellowstone), the most-visited (Great Smoky Mountains), the wet (the Everglades) to the dry (Death Valley, where the temperature once hit 134 degrees).
If you want everything taken care of for you, a cruise might be your ticket. It's a floating home with tons of food (of varying quality), entertainment and multiple destinations. It also may give you the most bang for the buck, with budget packages available as well as upscale voyages. You can cruise through the Caribbean, up to Alaska (in-season, of course), through the Mediterranean, through the fjords of Norway or down the rivers of Europe. A cruise can also offer something for you, your children and the grandkids, too. The biggest cruise companies are Carnival (CCL) (which also includes Princess and Holland American), Royal Caribbean (RCL), and Star Cruises (based in Malaysia).
After endless meetings, computer time and paperwork, this is the time to get moving. The Grand Canyon is not only grand to look at but it offers some high-adrenaline hiking and white water rafting. Yosemite, Yellowstone and other national parks also offer top-notch hiking trails. Overseas, you can take a four-day, 30-mile trek along the Inca trail to Machu Picchu in Peru; explore the rugged beauty and wildlife of Australia's Outback, or cycle through the rolling hills and villages of France's Provence and Bordeaux regions. While these are active vacations, you don't have to all of the work yourself. Tour companies will make the (sometimes-luxurious) arrangements, and you don't have to rough it.
This might be the ultimate getaway: book a seat on Richard Branson's Virgin Galactic flight into space. The first one is set to launch in the spring of 2015 from the company's Spaceport in New Mexico. Obviously, it's not for everyone. The cost for a seat is more than $400,000. If you want to keep your feet firmly planted on earth, revisit Darwin's trip to the Galapagos Islands or interact with the penguins in the Falkland Islands. Or learn the local culture by trekking through Thailand or Costa Rica.
You can take a safari through more than 100 countries in every continent, but safaris are most associated with Africa. The best times are usually January through March and June through December. A trip into the wild is a chance to get in harmony with nature, experience local cultures and traditions and maybe capture it with one-of-a-kind photos.
I'm not sure which is better: a Michelin-rated restaurant in Paris or a sidewalk cafe with fresh baguettes and pastries. (I do know which is more affordable.) Europe is full of foodie destinations, such as Rome or a tapas crawl in Barcelona. In Asia, you'll want to sample the wonderfully fresh sushi in Tokyo and food in Huangzhou or dozens of other Chinese cities.

In the U.S., go coast-to-coast with lobster rolls in Maine, the famous restaurants and food trucks in New York, Chicago's burgers and pizza, Creole specialties in New Orleans and the coffee bars and fresh oysters in San Francisco. There are many local favorites. Travel+Leisure magazine names the pizza in Providence, Rhode Island (check out the movie "Mystic Pizza" for the Connecticut version); the cheesesteaks of Philadelphia; the small cafes in Savannah, Georgia; the Tex-Mex chili sauces in San Antonio; and the barbecue in Kansas City. When you've consumed everything there is to eat in the U.S., go north of the border to Montreal and Quebec for French cuisine.
Just because you're old enough to retire doesn't mean you too old to learn. In fact, this may be the best stage of life to expand your mind. Road Scholar is a nonprofit that offers 5,500 educational tours in all 50 states and 150 countries. Popular programs include Christmas in New York City and photography of the four corners region of Colorado, Utah, New Mexico and Arizona. In volunteer vacation, participants maintain trails in the U.S. Virgin Islands, work with orphaned or abandoned children in Peru or do other meaningful things with your time, brain and energy.
It's more than a Fleetwood Mac hit of the 1970s. The opportunities to travel are endless. You can go by yourself, as a couple, in small groups. You can go for a long weekend to Boston or settle in for a two-month stay at a villa in the hills of Italy. You can go on a limited budget (AARP offers travel discounts) or live in the lap of luxury. You'll meet new people. You can start to cross items off of your bucket list -- and add new ones to it.
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