The Consequences of Working Past Age 65

There are advantages to working later in life, but also some potential downsides. Here are some important points to consider.

Are you considering working after 65?

Working longer does allow you to save more toward federal retirement. Your retirement nest egg will continue to grow as you postpone making withdrawals. However, there are a few consequences to take note of when working past 65 that may hinder your retirement finances.

Let’s look at three of the most important consequences.

1. Enrolling in Medicare Part B

Federal employees become eligible for Medicare Part B coverage at age 65, just like everyone else. At this point, you will have some important decisions to make regarding your future health care needs.

Medicare is a complicated program and you will want to make sure to sign up at the right time. There is a seven-month window around age 65 in which you can enroll. If you wish to avoid penalties, you have three options. You must enroll within the three months prior to the month you turn age 65; alternatively, you may choose to enroll the month of your 65th birthday, or either three months after your birth month. Be aware that if you wait until the last four months of your enrollment period to sign up for Medicare Part B, you will experience a delay in your coverage.

Enrolling in Medicare Part A and B is a great resource to learn more about the ins and outs of Medicare. 

This enrollment window applies only if you choose to retire at any age before 65; if you are still working and covered under FEHB when you reach age 65, you may wait until you retire to enroll and not be subject to any penalties, provided you enroll within eight months of retiring. Failure to enroll during the extended eight-month period will result in your monthly Part B premium increasing by 10% for each 12-month period you could have been enrolled, but chose otherwise. 

2. Effect on Social Security Benefit

Working to a later age in life can be beneficial for your Social Security. Many federal employees are not entitled to their full Social Security benefit until age 66 or age 67, depending on their birth year. If you wait to draw your benefit until after your full retirement age, each year you wait results in an increase in the form of an eight percent delayed credit until age 70. 

Should you choose to receive your Social Security benefit before full retirement age and continue working, a portion or all of your benefit will be reduced.

In 2019, federal retirees drawing a Social Security benefit before full retirement age may earn up to $17,640 of earned income. For every $2 over that limit, $1 is withheld. Retirees who will reach full retirement age are allowed to make up to $46,920. For every $3 over the limit, $1 is withheld. Once you have attained full retirement age, the earnings limit no longer applies and you may earn as much as you like. Social Security benefits are recalculated to give you credit for any withheld benefits. 

3. Required Minimum Distributions

Working past 65 can also affect Individual Retirement Accounts (IRAs) and the Thrift Savings Plan (TSP). IRAs typically require that withdrawals be made after age 70 and a half. Income taxes are due on withdrawals from traditional accounts. If you continue working past 70 and a half, you can continue to delay withdrawals from the Thrift Savings Plan. Withdrawals from other existing IRAs and prior 401(k)s still require you to take an RMD.

As you can see, there are financial perks to working past 65, but also downsides to take into consideration. If you are unsure about when you should federally retire, analysts at Retirement Benefits Institute are happy to assist you and can be reached at (877) 864-1145.

Disclosure: The information contained in these blogs should not be used in any actual transaction without the advice and guidance of a tax or financial professional who is familiar with all the relevant facts. The information contained here is general in nature and is not intended as legal, tax or investment advice. Furthermore, the information contained herein may not be applicable to or suitable for the individuals’ specific circumstances or needs and may require consideration of other matters. RBI is not a broker-dealer, investment advisory firm, insurance company, or agency and does not provide investment or insurance-related advice or recommendations. Brandon Christy, President of RBI, is also president of Christy Capital Management, Inc. (CCM), a registered investment advisor.

About the Author

Brandon Christy, CPA, PFS, is the founder and president of Retirement Benefits Institute, Inc. He is an established leader in contracted federal retirement benefits education, and his company has trained over 10,000 federal employees to help them gain clarity and confidence in retirement.