Retirement: the benefits of staying on the job

Working a few years past full retirement age can make the difference between living in relative comfort during retirement and scrimping to pay the bills. Some employers are eager to hang on to employees with senior-level skills and experience. Plus, 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 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: 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 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 coverage. If you don't sign up, you may not be covered at all. At bigger companies, employer-based coverage pays first. Because Part A is free, you have no reason not to enroll; you may 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. But the money you earn at work could trigger taxes on up to 85 percent 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.