65 and Still Working

If saving enough money to retire comfortably is a math problem, working longer is the easiest way to solve it. And some people in their mid sixties simply aren’t ready to give up a career they love. But although the benefits of working longer usually eclipse the drawbacks, older workers face a number of minefields, including penalties when they take Social Security early or sign up for Medicare late, and unexpected taxes on money in their retirement accounts.

At age 65, Thomas Kaiser, an instructor at Thomas Aquinas College in Santa Paula, Calif., is embarking on a new phase of his academic career. He has been tapped to serve as associate dean of a second campus in western Massachusetts, after the project receives approval from the state.

Kaiser was a member of Thomas Aquinas’s first graduating class in 1975, and he was the first of the private liberal arts college’s tutors—what the school calls its professors—to teach all 23 courses in the school’s classical curriculum, which focuses on the great books of the western world. “I don’t consider this a job,” Kaiser says. “It’s more like a calling. It’s something you get better at as time goes on.”

He hasn’t decided when he’ll retire, but he hopes to work until age 70, and he is considering filing for Social Security benefits when he turns 66. Waiting until full retirement age (66 for people born between 1943 and 1954) to claim Social Security will enable Kaiser to avoid the annual earnings test, which affects workers who claim benefits before they’ve reached full retirement age.

Although at one time older workers may have seemed out of place in the employee cafeteria, their numbers are growing fast. The Bureau of Labor Statistics estimates that 36% of people between the ages of 65 and 69 will be working by 2024, up from 22% in 1994.

Still, many retirement programs and human resources departments don’t take into account the growing number of people who want to work beyond their mid sixties. If you want to stay on the job after age 65, you’ll need advice on how to maximize your benefits and avoid the traps, which include losing money because of the earnings test, paying penalties for failing to coordinate employer health benefits with Medicare, and getting hit with a tax bill once you turn 70 and are required to start taking money out of tax-deferred retirement plans.

Social Security

It often makes sense to delay taking Social Security until you stop working (or until you turn 70, whichever comes first). Why? One good reason is to avoid the earnings test. If you claim Social Security before you reach full retirement age, in 2018 your benefits will be reduced by $1 for every $2 you earn over $17,040. In the year you reach full retirement age, you’ll give up $1 in benefits for every $3 you earn over $45,360. In the month you reach full retirement age, the earnings test disappears. The test applies only to wages from a job or self-employment income; investment income, pension benefits and money withdrawn from your retirement savings aren’t counted.

The benefits you give up due to the earnings test aren’t lost forever, though. Once you reach full retirement age, the Social Security Administration will adjust your benefits so that you’ll recoup the amount that was withheld. For example, suppose you retire at 62, file for benefits and later go back to work, forfeiting 12 months of payments by the time you turn 66. When Social Security recalculates your benefits, you’ll be treated as if you claimed them three years early instead of four. So instead of taking a 25% haircut in your payments, which is what happens if you claim at age 62, your benefits will be reduced by 20%.

Still, that 20% reduction will continue for as long as you claim Social Security. By waiting until you reach full retirement age, you’ll receive 100% of the benefits you’ve earned. And if you continue to delay claiming benefits—which you may be able to afford to do if you’re working—you’ll receive an 8% increase in your payout for every year you forgo taking benefits after full retirement age, until you turn 70.

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