During his 26 years at a packaging company in Charlotte, N.C., Pat Baines climbed the ladder to become plant manager and then a vice-president. Along the way, he and his wife, Bonnie, put their two sons through college and paid for one to go to grad school. When a new company took over and asked Pat to transfer to a job in California, he chose early retirement, at age 62. That early retirement, plus the kids' educations and two subsequent bear markets, left the Baineses seriously short on retirement savings.
Enter Baines's second career, as a mail carrier for the U.S. Postal Service. Baines works a full-time shift, sorting the mail and delivering it by truck along his route in an affluent Charlotte neighborhood. To bolster the couple's savings, he shovels money into his pretax retirement account; they live off the rest of his pay, along with Social Security and a few modest pensions. Baines plans to retire for good in two years—when he turns 80.
At that point, thanks to the savings he produced over the past 15 years, the Baineses can afford to continue their comfortable lifestyle, which includes travel, tickets to the symphony and professional football games, and two cars. In fact, Baines says, working well into retirement hasn't crimped his style at all. "I was too young to retire at 65. I feel young at 78."
Working past 66 may not be everyone's idea of a dream "retirement," but for many baby-boomers, it could represent the future. A 2013 Wells Fargo survey showed that one-third of respondents expect to work until "at least 80" for lack of retirement savings.
Even working a few years past full retirement age—66 for those born in 1943 to 1954—can make the difference between living in relative comfort during retirement and scrimping to pay the bills. A steady paycheck means you have more time to save, and the nest egg you've accumulated can keep compounding, says Christine Fahlund, vice-president and senior financial planner at T. Rowe Price Investment Services.
Other reasons to work past quitting time: You're at the peak of your career, you want to stay engaged by working part-time, or you're eager to start a new venture. No matter your motivation, you'll face decisions that can have a lasting effect on your retirement well-being. Here's what's involved.
Keep your career job
In most professions, you can't be forced to retire; in fact, some employers are eager to hang on to employees with senior-level skills and experience. And benefits pegged to your salary will be all the sweeter if you continue working during your peak earning years.
Drew Spalding, 68, has spent almost his entire career with one employer: the U.S. Government Printing Office, where he's been general counsel since 2011. He says he sticks around "mostly because I like it." But he has at least one other incentive for staying on: As a long-time federal employee, he qualifies for a pension based on years of service as well as his top three years of earnings—and this year, federal employees got a modest raise.
Even if you don't have a defined-benefit pension, it can be worth prolonging your career to keep the benefits from a full-time gig, such as the 401(k) company match and group life insurance (employer-sponsored disability coverage usually stops when you hit 65).
Employer health insurance is another benefit you shouldn't underestimate. At 65, you qualify for Medicare Part A, which is free and covers hospital service. You can also enroll in Medicare Part B (for doctor visits), Medicare supplemental coverage and Part D (for prescription drugs).
If your company has fewer than 20 employees, Medicare becomes your primary insurance, even if your employer offers its own coverage. If you don't sign up for Medicare, you may not be covered at all; discuss your options with your employer.
At bigger companies, employer-based coverage pays first. Because Part A is free, you have no reason not to enroll; at that point, you can also enroll in parts B and D if you want them. But if your employer insurance is better and cheaper than Medicare, stay on it. When you do finally retire, you can sign up for Part B and the other coverage without penalty or having to wait for open enrollment.
You may be tempted to add to your work income by taking Social Security at full retirement age. At that point, you won't be subject to the earnings test, which applies if you claim benefits early. (For 2014, you're subject to the earnings test if you make more than $15,480, or $41,400 in the year you reach full retirement age. For every $2 you earn over that limit, you'll lose $1 of benefits.) But the money you earn at work could trigger taxes on up to 85% of your Social Security benefit. The maximum amount of Social Security is taxed if your combined income, which includes investment earnings and half your Social Security benefit, exceeds $34,000 for singles, or $44,000 for couples filing jointly. "It's ridiculously low," says Rande Spiegelman, vice-president of financial planning at the Schwab Center for Financial Research. Better to let the benefit grow, he says, than to pay tax on income you don't need.
Get a new gig
Keeping the job you have is almost always easier than finding another one, especially at age 66, says Tim Driver, of RetirementJobs.com, which lists jobs for people 50 and over. Still, some industries are waking up to the fact that many customers and clients prefer dealing with older workers. "The caregiver category is huge," says Driver. "If you're taking care of people in their eighties or nineties, you are typically rewarded for being a little older." (RetirementJobs.com recently launched a subsidiary called MatureCaregivers.com.) Other categories friendly to seniors include retail positions and driving gigs for, say, retirement communities.