When you reach the age of 65, there are five financial milestones you should be aware of. Even if you aren’t quite ready to retire just yet, this is an important age for planning your future.
People no longer often retire at age 65, receive a gold watch, and a lifetime of guaranteed income from pensions and Social Security. However, age 65 remains a pivotal point regarding financial benefits and drawbacks for retirees and those on the cusp of retirement. Getting the most out of Social Security, health care, taxes, and retirement savings beyond age 65 requires understanding the new laws.
You are not yet eligible for full Social Security retirement benefits.
This is very different from the retirement your parents experienced. Getting full Social Security payments has always required reaching the age of 65. That age began to rise for people born in 1938. Between 1943 and 1954, full retirement began at 66, and for those born in 1960 and beyond reach, it is now age 67.
Starting at age 62, you can still begin receiving early benefits; however, they will be permanently decreased based on the number of months you spend receiving them before reaching full retirement age. The full retirement age for someone born in 1955 is 66 years and two months. A 65-year-old filing for Social Security this year would put them 14 months ahead of schedule.
Tim Steffen, advisor education specialist at PIMCO Investments, estimates that a person’s payout would be decreased by 7.82 percent if they started receiving it 14 months before their normal retirement age. Taking benefits early might also lower the amount your spouse will get as a survivor benefit in the event of your death. (The AARP has a Social Security Calculator where you may estimate your payout at different ages.)
In addition, your Social Security payments may be decreased if you are working over the age of full retirement eligibility.
You are eligible to enroll in Medicare.
Not a thing has changed there; Medicare eligibility begins at age 65 as before. However, if you haven’t begun collecting Social Security payments yet, the requirements for signing up might be confusing. When you turn 65, if you have already signed up for Social Security, you will be registered in Medicare automatically. However, if you haven’t yet signed up for Social Security, Medicare is required.
You will not automatically be enrolled if you are not receiving Social Security, says Joanne Giardini-Russell, proprietor of Giardini Medicare in Howell, Michigan, which assists people with Medicare concerns and supplemental coverage.
You can enroll in Medicare three months before, three months during, and three months after your birthday month. You can still enroll in Medicare online through the Social Security Administration’s website even if you have not yet applied for Social Security benefits.
At age 65, most people must enroll in Medicare unless another health insurance plan covers them through their workplace or spouse. Because Medicare Part A (hospital insurance) is free for most individuals after they turn 65, most people enroll in it regardless of their employment status (unless they want to contribute to an HSA).
Part B of Medicare, which pays for visits to the doctor and other outpatient services, will cost $144.60 a month in 2020 (more for high incomes), discouraging some people from signing up for it before they retire. However, you must join within eight months after losing your employer’s coverage, or you will be charged a 10% late enrollment penalty of the cost of Part B for every 12 months you should have been enrolled but weren’t.
In addition, at age 65, Medicare often becomes the main coverage, and any other insurance becomes secondary coverage if you do not have health insurance via an employer with 20 or more employees (including retiree health benefits and COBRA coverage). A failure to enroll in Medicare at that time might result in significant financial hardship.
For a wider variety of purchases, your HSA can be used.
Contributions to an HSA are tax deductible (or pre-tax if made via an employer), the funds grow tax-deferred, and distributions made for qualified medical costs are tax-free, all at any time. Upon reaching retirement age, you can access the funds tax-free.
Some persons still employed by a major company delay enrolling in Medicare Part A or Part B so they can continue making HSA contributions after retirement. In 2020, you must have a deductible of at least $1,400 for individual coverage or $2,800 for family coverage if you plan to contribute to a health savings account (HSA).
You may continue to let your HSA balance grow even after you can no longer add to it. If you use your HSA funds for non-medical purposes, you will be subject to taxes and a 20% penalty until you reach age 65, at which point the penalty will no longer apply. Non-medical withdrawals at that time are subject only to taxes. Steven Hamilton, an enrolled agent in Grayslake, Illinois, says, He constantly preaches to his customers that they may utilize it as a second 401(k).
You can also avoid paying taxes in a variety of other ways. Suppose the HSA owner is 65 or older. In that case, they can utilize tax-free withdrawals from the account to cover the costs of Medicare Part B, Part D prescription-drug coverage, and Medicare Advantage (but not Medigap) for themselves and their spouse.
Tax benefits
Various tax benefits, such as a higher standard deduction, are increased.
When filing your federal income tax return after the year in which you turn 65, you are entitled to a greater standard deduction. For 2020, the standard deduction is $12,400 for solo taxpayers, $18,650 for heads of household, and $24,800 for married couples filing jointly. Those who file as heads of household or individuals and are 65 or older are entitled to a $1,650 additional standard deduction. If both partners are 65 or older, the pair will get an additional $1,300 ($2,600 total).
Tax Credits for the Elderly or Disabled may be available for those 65 and older with a low income. Advice from the IRS is available in more detail for senior citizens.
At age 65, you may also be eligible for further state and local tax benefits. For those who are 65 and over, several state and municipal jurisdictions freeze property tax assessments, adds Hamilton. Your state may deduct a certain amount from your home’s assessed value or property tax payment. Get in touch with the relevant authorities in your state and locality to learn more about possible rebates.
It’s not too late to start a retirement fund.
As long as you’re working, even if it’s only part-time or freelance, you may save money for retirement even if you’re over 65. You can contribute to either a Roth or a regular IRA at any age if you earn income from work. If you are 50 or older in 2020, you will be eligible to make an IRA contribution of up to $7,000. (or up to the amount you earned from working for the year, if less). If your spouse is 50 or older and you are employed, but they are not, you can put up to $7,000 into their name into a spousal IRA.
Retirement savings might still matter in your 60s and 70s. Certified financial advisor Patrick Carney from Lancaster, Pennsylvania, says that it’s still important to maintain savings if they have the opportunity to.” Someone working from age 65 to 75 and putting away $7,000 per year into a retirement account that grows at 5% per year would have over $100,000 saved by the time they reach age 75.
If your adjusted gross income for 2020 is $32,500 or less (single), $48,750 or less (head of household), or $65,000 or less (married filing jointly), you may qualify for the retired savers’ tax credit. The size of the rebate depends on how much money you make, and each individual is limited to a $1,000 credit.