Planning, planning, it’s all about planning when your goal is retirement. When you hang up your career, you don’t want any surprises, or at least as few as possible. In the 21st century, retirement is completely different than it’s ever been.
As a kid, I saw people retire after working 40 or 50 years for the same company. On their last day, they were given a small retirement party, a few kind words, and a gold watch. The definition of retirement was going home and sitting in a rocking chair. And in many cases, the retiree was dead in a couple of years because there was no challenge—no reason to get out of bed. Those were the days when retirement happened at age 65.
But even though 65 is no longer the magic beginning of the golden years, it’s still an important age that needs to be planned for. Here are some things to keep in mind at 65 that may help you now or keep you out of trouble later.
You can sign up for Medicare
Yes, you can still sign up for Medicare at age 65. But there are some wrinkles to remember, especially if you haven’t started receiving Social Security benefits.
If you start receiving Social Security before 65, you’ll automatically be enrolled in Medicare when you hit 65. But if you haven’t signed up for Social Security then it’s your responsibility to enroll in Medicare.
You have a seven-month window to enroll for Medicare called the Initial Enrollment Period—3 months before you turn 65, the month you turn 65, and three months after the month you turn 65. You can enroll online at the Social Security website even if you haven’t started receiving Social Security benefits.
There are two parts to Medicare—Part A, which covers hospitalization and is free to most people. Then, there’s Part B, which covers doctor and outpatient services. You have to pay for Part B. The cost changes annually. If you’re already receiving Social Security the cost is deducted from your payment. If you’re not receiving Social Security, there are payment options. If you don’t sign up for Part B when you’re 65 and decide to enroll later you will be charged a 10% penalty for every 12-month period you could have had Part B and chose not to. That penalty lasts for the rest of your life.
An exception to that rule is if you continue to work and are covered by a qualified employer health plan or a spouse’s plan. A qualified plan means one provided by a company with 20 employees or more. When you leave that employer, you have an 8-month window to sign up for Medicare. Because you were covered by an employer plan, you can enroll during the 8-month Special Enrollment Period without penalty.
65 is not full retirement age
It’s great that you can sign up for Medicare at 65. But if you sign up for Social Security at 65, you’ll get a smaller benefit than if you wait until your Full Retirement Age (FRA). Today, the Social Security Administration says you’re not ready to fully retire until you’re between 66 and 67.
The evolution of Social Security has made 66 the Full Retirement Age (FRA) for people born between 1943 and 1954. Then, FRA increases by two months every year until FRA is 67 for people born in 1960 and beyond. If speculation becomes reality, FRA may be pushed to 70.
You can begin receiving Social Security benefits as early as age 62, but if you do, your benefit will be reduced for the rest of your life and will also affect your spouse’s benefit, if that person receives benefits based on your work history, as well as the spousal benefit that will be paid if you die.
You get a bigger standard tax deduction
Who knew you get a tax reward for turning 65! But it’s true. At 65 you get a bigger standard tax deduction when you file your tax return. The standard deduction for 2020 is $12,400 for single filers, $18,650 for head of household, and $24,800 if you’re married filing jointly. Single filers and head of households who are 65 or older qualify for an extra $1,650 standard deduction. Married couples can get an extra $1,300 for each spouse who is 65 or older or $2,600 if both spouses are 65 or older.
Also, check the tax rules where you live. Some local, county, and state governments freeze property tax assessments for people over 65. Others reduced your property tax bill by a fixed dollar amount.
HSAs become even more attractive
Contributions to a health savings account (HSA) are tax-deductible, they grow tax-deferred, and you can withdraw the money tax-free for eligible medical expenses. When you enroll in Medicare, you have to stop making HSA contributions. But any money in the HSA can stay in the account and continue to grow.
When you’re 65 years old, you no longer have to pay a 20 percent penalty for taking money out of the HSA for nonmedical expenses. You do, however, have to pay ordinary income taxes on anything withdrawn for non-qualified expenses.
And one other advantage. After you turn 65 you can take tax-free HSA withdrawals to pay premiums for Medicare Part B, Part D prescription-drug coverage, and Medicare Advantage (but not Medigap) for yourself and your spouse, as long as the HSA account owner is 65 or older.
IRA contributions are still possible
If you still have earned income past 65 you can continue making IRA contributions—to either a Traditional IRA or a Roth—up to the annual maximum or the amount you earned, whichever is less. If you’re working and your spouse is not, you can contribute the same amount to a spousal IRA.
Your contributions may also make you eligible for the retirement savers’ tax credit, if your 2020 adjusted gross income is $32,500 or less if single, or $48,750 for head of household, or $65,000 if married filing jointly. The lower your income; the larger the credit. The maximum credit is $1,000 per person.
Don’t forget those senior discounts
Restaurants, hotels, and other businesses offer discounts to senior citizens. You may not feel like a senior when you turn 65, but take advantage of the discounts anyway. It may reduce your retirement costs and free up funds for other things.
When you ask for discounts, have your ID handy. Some businesses will ask for it to make sure you really do qualify. Keep in mind, the discount you receive may depend on your age or whether you use the discount on a certain day of the week or month.
Whatever the case, use those discounts. Your body may have some unpleasant things to say about aging, but senior discounts are your reward for all the years it’s taken to reach this wise and mature stage of life!