Work Longer and Prosper

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."

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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.

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Eager to leave your career job for one that makes the world a better place? Check out the section at RetirementJobs.com that lists jobs for nonprofits, including the Peace Corps. Encore.org, which encourages second careers with a social purpose, also posts nonprofit jobs, including those in health care, education, government and the environment. Most of these jobs are relatively low-paying; expect to do good but not to get rich.

Review your benefits. With a new full-time position, you'll have access to whatever benefits other full-time employees get, including health in­surance. If you're already enrolled in Medicare but have access to employer coverage that pays first, you can take it and drop Medicare parts B and D. You may re-enroll without penalty when you re-retire. If you have retiree coverage from a previous employer, ask the benefits administrator there what happens if you drop it while you work. Chances are, you'll lose it forever.

With Social Security, you may have to backtrack. Say you retired six months ago and claimed benefits, then went back to work full-time and don't need the extra income. You can undo your claiming decision by repaying the money, as long as you do so within a year of enrolling. Given the pluses of waiting until age 70 to collect benefits, "it's almost always worth paying the money back," says Spiegelman.

Phase in and out

Judith Kennedy, a psychologist in Rapid City, S.D., retired from her private practice about five years ago, when her husband was diagnosed with dementia. "We wanted to take some trips on his bucket list while he could still travel," she says. Two years ago, when Kennedy was 68, her husband entered an assisted-living facility, and she restarted her practice, working about 20 hours a week. Kennedy uses her earnings mostly to finance trips; she visited China last fall. "I'm going to work as long as I have my health and can do something meaningful while also having fun," she says.

Kennedy represents a new trend: the revolving-door approach to retirement. A 2013 study by Merrill Lynch reported that 71% of preretirees want to work in retirement, but "most are seeking flexible work arrangements," such as working part-time or alternating between periods of work and time off. Ernestine Fickerson, 75, a travel agent in Ventura, Cal., took that concept to a new level. She spends months at a time working as a tour host on cruise ships (she gets the cabin free and covers other costs herself). At home, she works from one to eight hours a day setting up trips for clients, for which she gets a commission.

A few companies, including Abbott Laboratories, the pharmaceutical company, and Bon Secours Virginia Health System, headquartered in Richmond, offer formal programs that let employees work fewer hours, take longer breaks or phase out of current responsibilities and into mentoring roles. More often, the arrangements are informal, says Anna Rappa­port, a consultant on retirement and benefits in the Chicago area. An employer may allow a senior employee to work fewer hours as an incentive to stay longer or offer flexible hours to all employees.

No matter what the setup, know the implications. Working fewer hours not only reduces your income but could also affect your eligibility for employee health benefits and the amount of your employer-provided life insurance.

Start your own business

The years after you leave your career job and before you fully retire might strike you as the perfect time to buy a franchise, become a consultant or turn your hobby into a cash cow.

But that same time frame involves special challenges. You may want to tap retirement funds for start-up money—generally, a bad idea to begin with. And about half of businesses fail within the first five years, meaning you could be left flat just as you really do want to retire. If your business is your main source of income, you'll probably have to work longer hours, not fewer. And as much as you may love what you're doing, you'll have to spend a good chunk of time on marketing and paperwork.

If you're still game, consider each business model. Starting a business from scratch is a high-risk endeavor. Franchises provide a template for newbies, says Michele Markey, of the Ewing Marion Kauffman Foundation, which trains would-be entrepreneurs. But they can be pricey (see Jump-Start Your Career With a Franchise). With consulting, you trade low overhead for lots of travel. Web sites such as Etsy.com make it easy to sell your wares online, but you'll face tough competition from other artists.

To all those challenges to starting a business late in life, add one more: knowing when to stop. "If you're planning to do this for only five years," says Markey, "you need to think about your entry and exit at the same time."

Does age work against you?

Federal law prohibits companies with 20 or more employees from discriminating against workers age 40 or older, both in hiring and firing (or laying off). Workers not subject to this protection include employees of small companies; independent contractors; and public safety officers, such as firefighters. Employers who can prove that an age-based policy is necessary to their normal operations are exempt from the law. For instance, the Federal Aviation Administration can require that commercial pilots retire at age 65.

That said, older workers may feel pressured to take a buyout, or they may sense they are no longer welcome. "There is not a lot of reliable data on the percentage of people who are retired involuntarily, but it's pretty high," says Tim Driver, of RetirementJobs.com. If you think you've been the victim of age discrimination, file a complaint with the Equal Employment Opportunity Commission within 180 days of the alleged violation or within 300 days if you live in a state with its own law against age discrimination. In that case, you must also file a claim with the appropriate state agency. Federal employees have a different complaint process.

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