More Americans are working well beyond the traditional retirement age, driven by longer life spans, rising living costs, and a shift away from employer-funded pensions to 401(k)s and other defined-contribution plans. This trend is projected to continue in 2025 and beyond, as a record number of Americans are turning 65 this year, according to the Alliance for Lifetime Income.
As this demographic shift reshapes the workforce, employers may face new challenges around benefits, eligibility, and compliance. Continued employment after age 65 can affect health insurance and other benefits, though not all benefits are impacted in the same way. Understanding these nuances is key to effectively supporting an aging workforce.
Health Insurance Benefits
Health insurance is one of the most common areas of confusion, and coverage coordination depends on the size of the employer. When an employee turns 65 and continues working, they become eligible for Medicare and may choose to either enroll or delay enrollment and keep their employer-sponsored health care coverage for now. Employers must continue offering group health insurance to all eligible employees, regardless of age.
Medicare coordination rules differ depending on whether the employer has 20 or more employees. For companies with 20 or more workers, the group health plan typically remains the primary payer, while Medicare acts as the secondary payer. Employees in this situation can delay Medicare enrollment without incurring a late penalty, depending on which option makes the most financial sense for them.
For employers with fewer than 20 employees, Medicare becomes the primary payer, and eligible employees need to enroll in Medicare Part A and Part B to avoid a gap in coverage and late enrollment penalties. Enrollment generally occurs during the Initial Enrollment Period (IEP), which begins three months before the employee’s 65th birthday and ends three months after.
The decision to enroll in Medicare or delay coverage should be made on a case-by-case basis guided by cost-benefit analysis. Again, it is important to note that the option to delay enrollment without penalties is only available at organizations with 20 or more employees.
Another key consideration is eligibility for a Health Savings Account (HSA). Once an employee enrolls in any part of Medicare, they are no longer eligible to contribute pre-tax dollars to an HSA. This is because HSA contributions require enrollment in a high-deductible health plan and no other health coverage, including Medicare. Employees who wish to continue HSA contributions may want to delay Medicare enrollment, if eligible.
Employers can support their workforce in making informed healthcare decisions by encouraging them to consider factors like premiums, deductibles, out-of-pocket expenses, and HSA eligibility—and by referring them to HR or a benefits advisor to review their options.
Social Security Benefits
Employees who have reached full retirement age are eligible to begin receiving Social Security benefits without any reduction, regardless of how much they earn. Reductions in benefits may occur if retirement benefits start before full retirement age depending on earnings.
Even while receiving benefits, employees must continue to pay Social Security taxes on their wages. Additionally, their benefits may be subject to federal income tax, depending on their income. If an individual’s combined income, which includes wages, Social Security benefits, and other taxable sources—exceeds certain thresholds, up to 85% of their benefits may be taxable. For single filers, taxation begins at $25,000 in combined income; for married couples filing jointly, it begins at $32,000.
Continued earnings after benefits begin can also lead to a recalculation of benefits. The Social Security Administration (SSA) reviews income annually, and if the most recent year ranks among an employee’s highest earning years, the SSA will recalculate their benefit. Any increase is applied retroactively to January of the following year, meaning that continued work—even after benefits begin—can potentially boost an employee’s monthly payment. It is always a good idea for individuals to review their Social Security earnings history for accuracy.
Additionally, employees who delay claiming Social Security benefits past full retirement age earn delayed retirement credits, which raise the monthly benefit for each month of postponement, up to age 70. Beyond that point, no further increases are applied, even if filing is delayed.
As with health coverage, employers should encourage employees to carefully review their Social Security options, considering both current income and long-term financial goals.
Other Benefit Considerations
Beyond health insurance and Social Security, there are additional benefit areas employers should evaluate as employees continue working past traditional retirement age.
Employer-sponsored group life insurance policies often include age-based benefit reductions. In many cases, the coverage amount automatically decreases at milestone ages such as 65, 70, or 75—often by a fixed percentage at each stage. Employees should be made aware of these reductions in advance to plan accordingly.
Long-term disability (LTD) insurance plans may also limit coverage based on age. For example, if an employee becomes disabled, the benefit period may vary based on the person’s age at the date of disability, rather than continuing to the standard retirement age used for younger employees.
For any age-related benefit changes, it is essential that employers review their plan documents and clearly communicate any changes in coverage with employees as they approach key age milestones.
Helping Employees Make Informed Decisions
As employees approach or work beyond the age of 65, employers play a critical role in helping them navigate complex benefit decisions. While the rules surrounding Medicare, Social Security, and other benefit programs can be confusing, proactive communication and thoughtful planning can go a long way in supporting your workforce.
Providing opportunities for employees to connect with HR, as well as trusted benefits and financial advisors, can help them understand how continued employment may impact their coverage, retirement income, and long-term planning. A well-informed workforce is better equipped to make confident decisions that support their health and financial security.
Jeffrey Nagel is the Senior Director of Benefits at 1RDG, the financial center, which provides businesses with a full range of management (payroll, benefits, HR) services. For more information, please visit 1RDG.com.