What happens if you don't retire at 65? Financial and health impacts

According to Investopedia, working past age 65 has been linked to better overall health, longer life expectancy, and sharper cognition. Choosing not to retire at 65 means a complex set of financial and personal impacts, which require careful consideration to ensure a healthy and happy later life.

Quick Summary

Delaying retirement past 65 offers a number of potential financial benefits, such as higher Social Security payments, more time for savings to grow, and continued income. There are also potential upsides for mental and physical health from sustained engagement and social connection, though the impact varies based on individual health and job quality.

Key Points

• Higher Social Security Benefits: Delaying beyond your Full Retirement Age (FRA) can significantly increase your monthly Social Security payments for life.

• More Time for Savings to Grow: Continuing to work gives you extra years to save and allows your investments to benefit from compounding growth.

• Retain Employer Benefits: Staying employed means you can keep your employer-sponsored health insurance, which can be more comprehensive than Medicare and cheaper until you reach age 65.

• Potential Health Benefits: Many studies link continued work with better mental and cognitive health outcomes due to social engagement and purpose, though job quality is a key factor.

• Medicare at 65: Regardless of when you stop working, you are eligible for Medicare benefits at age 65. You must enroll during your initial enrollment period to avoid late enrollment penalties.

• Risk of Waiting: Waiting longer carries risks, such as unexpected health problems or job loss, which could alter your retirement plans.

Understanding the 'Full' Retirement Age

While 65 is often seen as the traditional retirement age, the Social Security Administration's official full retirement age (FRA) is 67 for those born in 1960 or later. This is important because delaying Social Security benefits past your FRA, up to age 70, increases your monthly payout. Claiming at 65 if your FRA is 67 can still result in reduced benefits. Age 65 is also when Medicare eligibility starts. The decision to work past this age depends on your financial situation, health, and personal goals.

The Financial Impacts of Delaying Retirement

Working past 65 can significantly improve your financial security in retirement by providing more time to save and grow investments.

• Increased Social Security Benefits: Delaying Social Security benefits beyond your FRA (up to age 70) increases your monthly benefit for life.
• More Time to Save: Additional working years allow for more contributions to retirement accounts like 401(k)s and IRAs, including catch-up contributions for those over 50.
• Continued Income and Employer Benefits: Earning a salary delays withdrawals from retirement savings, allowing them to grow further. You can also maintain employer-sponsored health insurance before relying solely on Medicare.

Potential Health Effects: Mental and Physical

The health effects of working longer are varied, depending on factors like individual health, job satisfaction, and work environment.

• Mental Stimulation: Staying employed can help maintain cognitive function and provide a sense of purpose.
• Social Engagement: Work offers social interaction, which can combat isolation. While other activities also provide this, a job offers a consistent social structure.
• Physical Activity: Some jobs promote physical activity. However, demanding or stressful jobs may negatively impact health.
• Stress and Job Satisfaction: The mental health benefits are strongest in supportive work environments or when working is by choice or part-time.

Comparison: Retiring at 65 vs. 67

This table compares retiring at 65 versus 67, the current full retirement age for many born in 1960 or later.

Feature	Retiring at Age 65	Retiring at Age 67 (FRA)
Social Security Benefit	Reduced by approximately 13.3% for claiming early.	Receive 100% of your primary insurance amount.
Healthcare	Medicare eligibility begins, but you may need to navigate supplemental plans without employer coverage.	You have Medicare at 65 and may have 2 extra years of employer coverage before full retirement.
Investment Growth	Stop contributing to retirement accounts; start withdrawals.	Two extra years for investments to grow and for additional contributions.
Income Stream	Rely solely on savings, investments, and reduced Social Security.	Rely on salary for two more years before switching to retirement income.
Time in Retirement	Enjoy retirement earlier, but potentially with less financial security.	Fewer years of retirement to fund, but potentially less time for leisure activities.

Other Factors to Consider

Beyond finances and health, consider your spouse's retirement plans and your personal goals, such as hobbies or family time. Also, factor in the risk of unexpected health issues or job market changes. A balanced approach, like part-time work, might be a good compromise. For information on Medicare enrollment, consult the official Medicare.gov website.

Conclusion: The Personal Choice to Postpone Retirement

The decision not to retire at 65 is personal. It involves weighing the financial benefits of increased Social Security and savings against the potential risks and your personal desires for retirement. Assessing your financial readiness, health, and aspirations is crucial for making an informed decision that supports your long-term well-being.

Frequently Asked Questions

Does delaying retirement past 65 automatically increase my Social Security benefit?

Not automatically. The increase applies for each year you delay claiming benefits past your full retirement age (FRA), up until age 70. If your FRA is 67, claiming at 65 still means a reduced benefit, though not as much as at age 62.

What are the health benefits of not retiring at 65?

Research suggests that continuing to work can be linked to a sharper mind, better overall health, and a stronger sense of social connection. However, these benefits are most pronounced when the work is fulfilling and not overly stressful.

Will I pay a penalty if I don't enroll in Medicare at 65?

You may have to pay a late enrollment penalty for as long as you have Medicare coverage if you don't sign up for Part B when you are first eligible at 65. If you have employer-sponsored health coverage, you may be eligible for a Special Enrollment Period to sign up later without penalty.

How does continuing to work affect my savings?

By continuing to earn an income, you can delay drawing down your retirement savings, allowing for additional years of investment growth. You can also take advantage of "catch-up" contributions to boost your retirement accounts.

Is it better to retire at 65 or 70?

The 'best' time to retire is personal and depends on your financial needs, health, and life expectancy. Retiring at 70 maximizes your Social Security benefits, while retiring at 65 gives you earlier access to retirement time, but with a smaller monthly benefit.

What is the biggest risk of not retiring at 65?

A major risk is an unexpected health issue or job loss. If you plan to work longer but are then forced into retirement early due to health or a layoff, your finances might not be ready, leaving you with fewer options.

Does working past 65 mean I can no longer receive Social Security?

No. Once you reach your full retirement age, your earnings do not affect your Social Security benefit amount, no matter how much you earn. If you are under your FRA, there is an earnings limit that may reduce your benefit.