Your Social Security Benefits: The Rewards and Rules
Working past age 65 can impact your Social Security benefits, especially if you haven't reached your full retirement age (FRA) or delay benefits past your FRA. Your FRA is 67 for those born in 1960 or later.
Delayed Retirement Credits
Delaying Social Security past your FRA up to age 70 increases your monthly benefit by 8% per year through delayed retirement credits.
The Annual Earnings Test (Before FRA)
If you collect Social Security before your FRA and work, your benefits may be reduced based on your earnings. In 2025, if under FRA all year, you lose $1 in benefits for every $2 earned over $23,400. The year you reach FRA, the limit is higher ($62,160 in 2025) and applies only to earnings before your FRA month. The earnings test ends at your FRA.
Benefit Recalculation
Working also increases your benefit. The Social Security Administration (SSA) recalculates your benefit annually, potentially increasing it by replacing lower earning years with higher ones in your 35-year earnings history. Withheld benefits due to the earnings test are also factored back in at your FRA.
Navigating Medicare While Still Employed
Turning 65 brings Medicare eligibility, but working requires understanding enrollment periods to avoid penalties. Employer size is key.
Employer Size Matters: Small vs. Large Businesses
- Large Employer (20+ employees): If you or your spouse work for a large employer, you can usually delay Medicare Part B without penalty as the group plan pays first. You get an 8-month Special Enrollment Period (SEP) for Part B after employment or coverage ends.
- Small Employer (fewer than 20 employees): For small employers, Medicare is primary at age 65. Enroll in Part B during your Initial Enrollment Period to avoid penalties and coverage gaps.
Important Medicare Considerations
- Premium-Free Part A: Most people get premium-free Part A (hospital insurance) and should enroll at 65, even while working.
- Health Savings Accounts (HSAs): You cannot contribute to an HSA once enrolled in any Medicare part, including premium-free Part A. Delaying both Parts A and B is needed to continue HSA contributions, if your employer plan allows it without penalty.
- Creditable Drug Coverage: If your employer plan has drug coverage comparable to Medicare's, you can delay Part D without penalty. Employers must notify you annually about creditable coverage status.
Tax Implications of Continued Employment
Working past 65 can increase taxable income and potentially make your Social Security benefits taxable.
Social Security Benefit Taxation
A portion of your Social Security benefits may be taxed based on your combined income (adjusted gross income + nontaxable interest + half of Social Security benefits). In 2025, individuals with combined income between $25,000 and $34,000 may have up to 50% of benefits taxed, and up to 85% if over $34,000. For those married filing jointly, the thresholds are $32,000-$44,000 for up to 50% taxation and over $44,000 for up to 85%.
Contributions to Retirement Accounts
Working longer allows continued contributions, including catch-up contributions, to 401(k)s and IRAs, boosting savings and potentially lowering current taxable income.
Comparison: Before vs. After Full Retirement Age
| Feature | Working Before Full Retirement Age (Pre-FRA) | Working At or Past Full Retirement Age (FRA) |
|---|---|---|
| Social Security Earnings Test | Yes, benefits are temporarily reduced if earnings exceed annual limit. | No, you can earn any amount with no reduction in benefits. |
| Delayed Retirement Credits | No, not earned. | Yes, you earn credits for each month benefits are delayed (up to age 70). |
| Benefit Recalculation | Yes, benefits are adjusted upwards at FRA to credit for withheld benefits. | Yes, higher earnings years can replace lower ones in your 35-year calculation. |
| Medicare Part B Delay | Possible if you have group coverage from a large employer (20+). | Possible if you have group coverage from a large employer (20+). |
| Taxes on Benefits | Your wages and other income can still make your Social Security benefits taxable. | Increased income from wages can make your Social Security benefits taxable. |
Conclusion: Making Informed Decisions
Working past 65 has financial and lifestyle implications. Understanding its impact on Social Security, Medicare, and taxes is crucial. Key steps include checking employer health coverage, timing Social Security claims, and being aware of tax effects. The official Social Security Administration website offers resources for retirement planning. Make choices based on your health, finances, and goals to ensure working longer is beneficial.
