5 Benefits of Working Past 65
When people think about retirement, they view turning 65 years old as the magic number. And I get it! Why wait a few more years if you can retire now? Surprisingly, there may be more reasons than you think. Throughout this blog, I’m going to share with you five benefits of working past the age of 65, why these may be beneficial for you, and how to take advantage of them before it’s too late.
Key Takeaways:
· To Keep Saving Towards Retirement
· To Delay Social Security Benefits
· To Contribute to an HSA
· To Cover Your Travel Expenses
· To Stay Young
Working Longer to Keep Saving Towards Retirement
Working longer can have large effects on your retirement. The first way is through continued savings for retirement. If you continue to work then you should also continue to contribute to your retirement account whether that be a 401(k), 403(b), 457 Plan, etc. This money is invested pre-tax and grows tax-deferred which allows the principal balance to grow over time and the taxes are incurred at withdrawal. If your employer offers an employer match on contributions, then you should ensure that you are at least putting in the amount they are willing to match.
For those that work past age 65, you will have less time spent in retirement which means less expenses. If you think about it, this benefits you in two ways. First, you will have earned income from your salary/wages in addition to any pension, annuity, or Social Security income (if started). Then you would spend less time in retirement, which means that your retirement will cost less than it would have if you retired at say, 60 or 62. This could be suitable for those who started saving for retirement late or ran into obstacles throughout their life that required savings to be drawn down.
In addition, if your employer offers a pension, then delaying retirement could make even more sense. Most pensions offered in 2023 belong to those who work for the government, whether that be State or Federal. A lot of pensions are calculated using several factors, but two of the most common are the number of years you worked and an average of your top salary years. Therefore, working longer would also increase your pension benefit which is another point in the delay retirement column.
Working Longer to Delay Social Security Benefits
The second reason to work longer is to delay your Social Security benefit. Similar to the pension described above, Social Security can increase each additional year that you work. The reason I say “can” and not “will,” is because the Social Security calculation uses your highest 35 years of earnings. For example, imaging you continued to work, but switched to part-time so you were making significantly less than before. If your earned income in that year was not enough to replace one of your highest 35 years of earnings, then your Social Security benefit would not increase. Therefore, working longer does not guarantee that your Social Security benefit will increase.
Regardless, there are several studies that insist that you should wait until at least full retirement age. Full retirement age falls between ages 66 and 67 depending on the year you were born. Although it’s suggested that most people wait until age 70 to collect their benefit. The main reason for doing this is that you receive an additional 8% increase for each year you delay your benefit past full retirement age. For most people reading this, full retirement age will be age 67. Therefore, if these individual’s delay their benefit until age 70, then their benefit will increase by 24%.
Unfortunately, a lot of people struggle (mentally) to do this. There is an underlying feeling that you have contributed to Social Security for so long that you want to get as much as possible back. Which I can understand, so here are a couple things you should consider. Three of the main factors that I would consider are your health, your family (health) history, and whether you are the higher earning spouse. If you or your family’s health history has been good, then that could be a reason to delay your benefit as you can assume you will stay healthy. While the high-earning spouse should delay their benefit so it can grow larger and better supplement the lower-earning spouse’s income if he/she (higher-earning spouse) passes away first.
Working past full retirement age can make this process easier on the individual. The income that you forgo by delaying your Social Security benefit can be replaced by your earned income (salary). In addition, their Social Security benefit could increase if they do not have 35 years of earnings on their record. This was mentioned above, but even if they do have 35 years of earnings, the Social Security benefit could still increase if the earnings are large enough to replace one of their highest 35 years of earnings.
Working Longer to Contribute to an HSA
The third reason to work past age 65 is that you can continue to contribute to an HSA. Personally, I am a big fan of Health Savings Accounts (HSA). I have covered the topic in several different podcast episodes, of which I would recommend listening to 3 Reasons to Open an HSA Account in 2023. However, to review these accounts are the only triple tax-free investment account currently available. Which means that you receive a deduction on your contributions, the money grows tax-deferred, and can be withdrawn tax-free on qualified medical expenses. The one limitation is that you must be enrolled in a high-deductible health plan to contribute to an HSA, which many employers have switched to.
Although, once you enroll in Medicare, you cannot make HSA contributions. There is actually a clause that disallows HSA contributions in the 6 months leading up to the enrollment in Medicare so you must be aware of that. So you may wonder, how can I contribute to my HSA past age 65. Well, if you continue to work past age 65 then you can stay on your employer’s insurance rather than enrolling in Medicare. If you do that, then you can continue to contribute to an HSA and simply enroll in Medicare 3 months before retirement.
The old advice was to enroll in Medicare Part A even if you were going to work past age 65 and were covered by the employer health plan. Medicare Part A is free, and it could save you money if you end up in the hospital. While Part B covers preventative care and requires an additional premium. If you want to continue to make HSA contributions then you cannot enroll in either part of Medicare.
As I mentioned above, Medicare Part B comes at a cost, but so does the employer health plan. There are situations where it is significantly cheaper for an individual to enroll in Medicare rather than staying on their employer health plan. Unfortunately, these premiums widely differ per person so there is no blanket advice I can give. If you want to ensure that you make the correct insurance decisions, then I would suggest you consult with a Financial Advisor or an Insurance Professional.
Working Longer to Cover Your Travel Expenses
The fourth benefit to working past age 65 is that it can cover your travel expenses. A lot of clients come to me with the goal of extensive travel in retirement. Rarely do they consider taking these trips while still working. This could be true for various reasons including the on-going stress of working full time, or the build-up of work that accumulates while on vacation. Regardless, I have compiled a few reasons as to why it could be suitable for some people.
The first thing to look at are your vacation days. If you have accumulated a stack of vacation days, which many people have, then I’d recommend using these during your trip. This could either consist of paid or unpaid vacation days. Either way, using vacation days will result in less stress on your retirement portfolio because you will not need to draw money (or as much money) out of your savings.
Another reason that that it could make sense is due to your health. Unfortunately, our health tends to deteriorate as we age. This can include the emergence of health conditions, or the overall wear and tear on our bodies. Therefore, we can assume that you will be in better health now than in retirement. Which is why you should take advantage of these “dream vacations” while you can, rather than leaving it up to chance. I have heard several stories of people who waited until retirement to travel but were then unable to do so for various reasons.
Working Longer to Stay Young
The final reason to continue working past 65 is to stay young. A common complaint about work is that the stress associated with it makes you feel older. However, there are studies that show the exact opposite. It has been shown that staying active in retirement is the best way to stay healthy. If you delay retirement and continue to work, then it will benefit your health, and the same could be said for your mind. The more that your brain can be challenged and engaged, the longer your mind should stay sharp.
To contrast, there is support for the idea that you need to get enough rest and cut back stress in your 60’s to stay young. Doing so is supposed to help you stay healthier for longer. Therefore, I believe that it comes down to your job itself. If your position is demanding and requires a lot of hours, then it’s likely not the right position for you right now. In that case, I would suggest that the individual find a less demanding job to work until the end of their career. This way you can get the benefits of continuing to work while reducing stress at your new position.
I hope this blog has helped you understand the benefits of working past age 65. The decision depends on many factors so it’s up to you to objectively analyze your situation. That said, if you would like assistance from a financial planner then I could help with that. I offer a Free Consultation that you can book through the link or on my website, Morrissey Wealth Management.