If You're 65 and Still Working, Avoid Pitfalls and Maximize Benefits

If saving enough money to retire comfortably is a math problem, working longer is the easiest way to solve it. And some people in their mid sixties simply aren't ready to give up a career they love. But although the benefits of working longer usually eclipse the drawbacks, older workers face a number of minefields, including penalties when they take Social Security early or sign up for Medicare late, and unexpected taxes on money in their retirement accounts.

At age 65, Thomas Kaiser, an instructor at Thomas Aquinas College in Santa Paula, Calif., is embarking on a new phase of his academic career. He has been tapped to serve as associate dean of a second campus in western Massachusetts, after the project receives approval from the state.

Kaiser was a member of Thomas Aquinas's first graduating class in 1975, and he was the first of the private liberal arts college's tutors--what the school calls its professors--to teach all 23 courses in the school's classical curriculum, which focuses on the great books of the western world. "I don't consider this a job," Kaiser says. "It's more like a calling. It's something you get better at as time goes on."

He hasn't decided when he'll retire, but he hopes to work until age 70, and he is considering filing for Social Security benefits when he turns 66. Waiting until full retirement age (66 for people born between 1943 and 1954) to claim Social Security will enable Kaiser to avoid the annual earnings test, which affects workers who claim benefits before they've reached full retirement age.

Although at one time older workers may have seemed out of place in the employee cafeteria, their numbers are growing fast. The Bureau of Labor Statistics estimates that 36% of people between the ages of 65 and 69 will be working by 2024, up from 22% in 1994.

Still, many retirement programs and human resources departments don't take into account the, paying penalties for failing to coordinate employer health benefits with Medicare, and getting hit with a tax bill once you turn 70 and are required to start taking money out of tax-deferred retirement plans.