What happens when you turn 65 and are still working?

According to the U.S. Bureau of Labor Statistics, an increasing number of people are choosing to work past age 65. When you reach this milestone while still in the workforce, several important decisions regarding your health coverage and retirement benefits arise. Understanding what happens when you turn 65 and are still working is crucial for making informed choices that impact your financial and physical well-being for years to come.

Quick Summary

Reaching age 65 while employed requires navigating choices about Medicare enrollment, managing Social Security benefits to avoid penalties, and understanding how employer-provided health insurance and retirement income are affected, all of which depend on your employer's size and your full retirement age. Taking the right actions ensures you maximize your benefits and avoid potential pitfalls.

Key Points

• Medicare Enrollment Depends on Employer Size: If you have employer-sponsored health insurance at age 65, your decision to enroll in Medicare Part B and D depends on whether your company has 20 or more employees. For more details on this, see {Link: SSA.gov https://www.ssa.gov/benefits/retirement/matrix.html}.

• Delaying Social Security Increases Benefits: Waiting to claim Social Security benefits past your full retirement age (FRA) can significantly increase your monthly payment for the rest of your life, up until age 70.

• Working Can Impact Social Security Benefits: If you claim Social Security before your FRA while still working, your benefits may be temporarily reduced if you exceed the annual earnings limit.

• Enroll in Medicare Part A if Possible: For most people, enrolling in premium-free Medicare Part A at 65 is advisable, as it provides hospital coverage and does not typically affect HSA contributions if you have creditable employer coverage.

• HSAs Are Incompatible with Medicare: You cannot contribute to a Health Savings Account (HSA) once you are enrolled in any part of Medicare, including Part A. This is a crucial consideration for those with employer-provided HSAs.

• Consult Your HR and Financial Advisor: The most important steps are to confirm your employer's specific policies with your HR department and seek advice from a financial expert to navigate the tax implications and optimize your benefits.

Navigating Medicare While Still Employed

Turning 65 makes you eligible for Medicare, but working impacts your enrollment decisions, especially concerning Parts A, B, and D. These choices often depend on whether your employer offers health insurance and the size of the company.

Medicare Part A (Hospital Insurance)

It's generally advised to enroll in premium-free Medicare Part A at 65 if you or your spouse has enough work history. This adds hospital coverage without cost and is often automatic if receiving Social Security benefits.

Medicare Part B (Medical Insurance) and Part D (Prescription Drugs)

Deciding on Parts B and D is more complex due to premiums and potential late enrollment penalties. If you work for a large employer (20+ employees) with health coverage, you can typically delay enrolling in B and D without penalty; your employer plan is primary, and Medicare is secondary. A Special Enrollment Period (SEP) is available when this coverage ends. For smaller employers (fewer than 20 employees), Medicare is generally primary at 65, and you may need to enroll in B and D during your Initial Enrollment Period to avoid penalties. Consult your HR department to understand your plan's coordination with Medicare.

Understanding Social Security Benefits

Working past 65 affects when and how you claim Social Security. Claiming before your Full Retirement Age (FRA) while working can lead to temporary benefit reductions if you earn above a certain limit. These benefits are recalculated at your FRA. Delaying benefits past your FRA increases your monthly payment by a percentage each year until age 70. Working longer can also increase your overall benefit by replacing lower-earning years in the calculation.

Comparison: Working vs. Retiring at 65

Feature	Still Working at 65	Retiring at 65
Financial Impact	Potential for increased retirement savings; may push you into higher tax bracket; can boost future Social Security benefits.	Relies on existing savings and Social Security; can lower tax liability; may be forced to make significant cuts due to inflation.
Health Insurance	Coverage often through employer group plan; must coordinate with Medicare Parts B and D based on company size.	Relies primarily on Medicare (Parts A, B, D) and supplemental coverage; no longer pays for employer premiums.
Social Security	Benefits may be temporarily reduced if claimed before FRA; can grow by 8% per year if delayed past FRA until age 70.	Can claim full benefits at FRA without earning limits; claiming early results in a permanent reduction.
Lifestyle	Maintains routine, social connections, and sense of purpose.	More leisure time, potential for new hobbies, but may experience decreased social engagement.
Considerations	Requires careful planning for Medicare and Social Security timing; potential impact on taxes.	Important to assess financial readiness and overall readiness for full retirement.

Other Considerations for Working Seniors

Health Savings Accounts (HSAs)

Enrolling in any part of Medicare, including Part A, prevents you from contributing to an HSA. If you wish to continue HSA contributions, you must delay all Medicare enrollment.

Tax Implications

Working past 65 can increase your taxable income, potentially pushing you into a higher tax bracket and making a portion of your Social Security benefits taxable. Consulting a financial advisor or tax professional is recommended.

The Importance of Health and Well-being

Research suggests working longer can have health benefits, including reduced mortality risk and improved cognitive function. Maintaining social engagement and purpose through work can contribute to overall well-being, but this should be balanced with physical health.

For more detailed information on all aspects of working in retirement, including a variety of scenarios, you can visit the official Social Security Administration website: https://www.ssa.ssa.gov/.

Taking Action When You Turn 65

Discuss your employer's health and retirement policies with HR before you turn 65. Evaluate your finances and goals to decide the best time to claim Social Security. Informed decisions lead to a smoother financial and healthcare transition while working.

Conclusion

Turning 65 while working requires careful planning regarding Medicare and Social Security. Your decisions depend on factors like employer size and financial goals. Understanding your options helps ensure financial security and healthcare access as you age.

Frequently Asked Questions

What is the difference between Medicare enrollment for large vs. small employers when working at 65?

If your employer has 20 or more employees, their group plan is typically your primary coverage, and you can delay Medicare Part B without penalty. If your employer has fewer than 20 employees, Medicare often becomes your primary coverage at age 65, and delaying Part B can lead to late enrollment penalties. See {Link: SSA.gov https://www.ssa.ssa.gov/benefits/retirement/matrix.html} for more details.

Can I keep my employer-sponsored health insurance when I turn 65?

Yes, in many cases, you can. Federal law requires large employers (20+ employees) to offer you the same health benefits as younger workers. To decide if you need to enroll in Medicare at 65, you need to understand how your plan coordinates with Medicare. For more information, see {Link: SSA.gov https://www.ssa.ssa.gov/benefits/retirement/matrix.html}.

Will my Social Security benefits be reduced if I work past my full retirement age?

No. Once you reach your full retirement age (FRA), your earnings no longer affect your Social Security benefits, and you can receive your full benefit amount while continuing to work. See {Link: SSA.gov https://www.ssa.ssa.gov/benefits/retirement/matrix.html} for additional details.

How much can I increase my Social Security benefits by delaying past my full retirement age?

For every year you delay claiming Social Security past your FRA, up until age 70, your monthly benefit will increase. For those born in 1943 or later, this increase is 8% per year.

What is a Special Enrollment Period for Medicare?

A Special Enrollment Period (SEP) is a specific time frame that allows you to sign up for Medicare Part B (and sometimes D) without a late enrollment penalty. It is typically granted when you lose your employer-sponsored health coverage after working past age 65. For more information, see {Link: SSA.gov https://www.ssa.ssa.gov/benefits/retirement/matrix.html}.

Should I enroll in Medicare Part A if I'm still working at 65?

For most people, yes. Part A is typically premium-free if you've worked and paid Medicare taxes for at least 10 years, and it can help cover hospital costs. However, be aware that enrolling in Part A will prevent you from contributing to a Health Savings Account (HSA).

How do my earnings affect the taxes on my Social Security benefits?

If your combined income (adjusted gross income, plus non-taxable interest, plus half of your Social Security benefits) exceeds a certain threshold, a portion of your Social Security benefits may become taxable at the federal level. Working longer can push you past this limit.