How to navigate benefits if you’re working past age 65

It’s no secret that Americans are working longer. But some are working well past traditional retirement age: the fastest-growing segment of the labor force is workers over age 65, according to the U.S. Bureau of Labor Statistics – and the growth is especially pronounced among workers over age 70.

Working longer certainly can boost the odds of a successful retirement plan via higher Social Security income, retirement account contributions and fewer total years of dependence on portfolio accumulations.

But working well past traditional retirement age does present some complications. Much of our retirement benefits structure still is geared toward a more traditional retirement age. The Medicare enrollment age is 65; Social Security’s full retirement age (FRA) is 66, on its way to 67 in 2027. Required Minimum Distributions (RMDs) must begin at age 70 ½. And the tax-deferred retirement system is predicated on the idea that older people will be in lower tax brackets when funds are withdrawn than during the traditional wealth accumulation years.

I’ve put together a Guide to Navigating Benefits if You’re Working Past Age 65, which is available as a free PDF download. You’ll receive this report free when you sign up for the free weekly RetirementRevised.com email newsletter.  You’ll get weekly updates on Social Security, Medicare, investing in 401(k)s and IRAs, careers after age 50 and much more. Click here to subscribe and receive the guide.

Meanwhile, here is a summary of the key retirement planning items to keep in mind.

Social Security

Working longer is a great way to get the most out of Social Security. Benefits are calculated using a formula called the primary insurance amount, or PIA. For people working in their 60s, there’s very little sense in filing early – unless you have reason to think your life expectancy will be unusually short. Earlier filers who have income from work in 2015 of more than $15,720 are hit with a penalty (Social Security defines “income” in this context as wages from employment or net earnings from self-employment). If earnings exceed the limit, $1 will be deducted from benefit payments for every $2 earned over that amount. The withheld benefits are added back into benefits after you reach full retirement age. After that age, they can have unlimited income and receive Social Security benefits without penalty.

Likewise, there’s no reason to wait beyond age 70, even for people who are still working, since credits stop accruing at that age. However, it’s important to keep an eye on taxation of Social Security. Benefits are taxed using a “combined income” formula that is determined by adding together adjusted gross income, tax-exempt income and half of the Social Security benefit. If that total exceeds $25,000 for individuals ($32,000 for married couples), then 50 percent if the excess must be included in income for tax purposes; if it’s over $34,000 ($44,000 for couples) then 85 percent of the excess is included in your income. 

Medicare

Medicare filing errors can be costly.

Eligibility begins at 65, and sign-up is automatic if you already receive Social Security benefits. If not, it’s important to sign up sometime in the three months before your 65th birthday up through the three months following, because failing to do so can lead to expensive premium penalties down the road. (Although signup can be done up until three months after the 65th birthday, but there’s a waiting period for people who don’t enroll by the end of the month that they turn 65.)

Monthly Part B premiums jump 10 percent for each full 12-month period that a senior could have had coverage but didn’t sign up. That can really add up: a senior who fails to enroll for five years ultimately would face a 50 percent Part B penalty–10 percent for each year. Penalties also are applied to Medicare Part D (prescription drugs) and Medicare Advantage plans (Part C) that include drug coverage.

RMDs

Required Minimum Distributions (RMDs) must be taken from Individual Retirement Accounts (IRAs) starting in the year you turn 70.5 – and from 401(k)s at the same age, unless she is working for the employer that sponsors the plan.

For older people who are still working at this age, RMDs are just one of several moving parts in the income picture, along with wages, Social Security, interest income and a traditional pension from a former employer, if any. The top marginal rate is now 39.6 percent for individuals next year with income over $406,750 and joint filers over $457,600.

Working seniors also may find themselves paying Medicare’s high income premium surcharges. The surcharges are applied to Part B, Part D (prescription drugs). They affect individuals with more than $85,000 in annual income and joint filers with total annual income of more than $170,000. The surcharges start at $42 per month, and run up to $231 monthly for the highest income seniors.