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Working Past 65? Boost Your Financial Security In 5 Easy Steps

In our sixties, we think we can work forever. But it pays to be ready for the unexpected. Here’s how.

Reduce your debt, establish a budget and insure against health emergencies: Those are the three essential actions experts say you must take if you plan to keep working long past retirement age. It's solid advice for anyone at any age, but is too often neglected by people who assume they will always be able to earn a paycheck.

“A lot of people think, ‘I’m going to work forever,’” says financial advisor Bill Bailey, whose office is in Citrus Heights, California. “That’s a great, noble attitude.” But often, life doesn't work out that way, so you need to create a backup plan that increases your financial flexibility.

Cathy Ahles and her husband, Fred, want to work until the day they die. “We just know we’re those kind of people,” she says. The entrepreneurial pair – he is a partner in an aviation brokerage business where she works as well – plan to bow out of that career within the next five years.

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After that, it’s on to the next act: Fred, 62, will become a solo broker, and Cathy, 61, currently senior vice president of marketing, will become a marketing consultant and teacher. But how do they build a foundation that supports their future dreams? They will eventually sell their shares in Premier Aircraft Sales, to their current partners or a suitable outside investor. But, like many other sixtysomethings, they'll need more than the proceeds from the sale to sustain them in retirement.

Here are five factors that the Ahles and anyone who plans to work past 65 should consider.

Set a realistic stop-work goal: As we near 65, many of us plan to work forever. We think that because we've reached the traditional retirement age and aren’t slowing down, we never will. But life can change quickly. “I know lots of entrepreneurs who say they’re not going to retire,” says David Lucca, a partner with Rhoads Lucca Capital Management, based in Dallas, Texas. “When they get into their 70s, they start to shift.” Suddenly, they're thinking about retirement.

When you create your financial plan, you’ll need to put a retirement age into your budget form or spreadsheet. If you think you want to work for another decade of more, try 72 or 75. Financial planners recommend this age range because it takes into account two facts: you must start drawing Social Security at age 70; and by their mid-70s, most people are beginning to slow down.

Cut your debt and fine-tune your lifestyle: Even those who want to work past retirement age often don’t want to work at the same grinding pace. If you reduce the amount of money you need, you’ll have more freedom to do work you enjoy. The Ahles sold their 4,200-square-foot home and paid cash for a two-bedroom condo. Cathy has started drawing a state pension, and the couple has deferred tapping into their 401(k)s for as long as possible. Cutting back an expensive lifestyle may be easier than you think. “The aging yuppie in me longs to cook at home, rather than eat out, and my need for – and taste in – clothing and shoes has followed a distinctly downward path since I hit 50,” says Cathy. She and her husband have cut their discretionary spending by a third.

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Make good choices about filing for Social Security and Medicare: Everyone should file for Medicare Part A, which covers hospital expenses, at age 65. If you’re still employed, take a careful look at Medicare Part B and see if what your employer provides is a better deal than other options, says advisor Tom Fredrickson, whose eponymous firm is based in New York City. As for Social Security, every year that you delay taking Social Security until age 70, when you must begin drawing it, increases your payment by 8%. But do remember to apply for it in time. “I had one extremely well-paid client, who just didn’t file the paperwork,” Fredrickson said. “She realized it at 72. She just lost those two years of Social Security.”

Plan for a health crisis: Illness can strike at any time, and it becomes more likely as you age, even if you feel invincible. Have an emergency fund of at least a year’s worth of expenses in liquid assets, such as a money market fund or savings account, Fredrickson advises. Long-term care insurance and disability insurance may be expensive – but may be worth the peace of mind. The Ahles pay $6,000 a year for a long-term-care policy, after watching family members face sudden declines in health.

     See also: How To Save on Health Care When You're Self-employed

Consider Roth retirement savings: If your goal is to work as long as you can, a Roth IRA offers more options for saving and distributions than a traditional IRA. Unlike a traditional IRA, a Roth IRA allows you to keep contributing as long as you’re working. (You can't contribute to a traditional type of IRA after you turn 70.5 and you must begin taking distributions then.) You never have to take minimum distributions from a Roth plan. Experts debate which plan has greater tax benefits; the answer probably depends on your personal situation. But there's no question that a Roth gives you more flexibility.

If you have a 401(k), you can continue contributing as long as you're working. In fact, workers over 50 can contribute more as “catch-up” contributions, but you still need to begin taking distributions at age 70.5. A financial advisor or an accountant can help with this level of planning.

Elizabeth MacBride is co-editor of the $200KFreelancer, a site focused on helping independent professionals make a good living.