You have to be ready if you want to be successful in your golden
years.
Dan
Caplinger (TMFGalagan) Author Bio Jan 4, 2020 at 7:01AM
If you ask a typical American what age is the
right one to retire, most would probably answer 65. Nowadays, many people
aspire to retire earlier even as others find themselves having to work longer
in order to make ends meet, but 65 is still a popular time to think about
retiring.
One reason why 65 still holds a place in the
collective consciousness as a milestone on the road to retirement is that many
necessary elements for a successful retirement are still connected to that age.
Regardless of whether you're already retired or aren't planning to retire right
away, you'll want to know about the implications of turning 65. Below, we'll
fill you in on three things that everyone reaching age 65 in 2020 ought to know
-- and what action they can take to take full advantage of what's available.
1. Medicare is now
available to you
The thing that more Americans look forward to
when they turn 65 than anything else is getting to take Medicare benefits. Even if you retired a long
time ago, the healthcare coverage that Medicare provides can be a lot easier to
deal with than the options available to those who don't get their insurance
through their employers.
One thing that catches some 65-year-olds by
surprise is that Medicare won't necessarily sign you up automatically for
coverage. In particular, those who haven't yet claimed Social Security benefits
have to apply for Medicare. It's generally best to sign up a few months in
advance, because then you won't have to worry about any gaps between your 65th
birthday and when your Medicare coverage will kick in.
Most 65-year-olds like Medicare, but there are
some who don't have to sign up for the program. If you have
healthcare coverage either through your own work or through your spouse's
employer, then you might prefer to stick with that coverage instead. When it
lapses, though, you'll need to sign up for Medicare during the resulting
special enrollment period. If you don't, then you could once again have a gap
in coverage that can be costly.
2. You can save on
your taxes
Turning
65 also entitles you to some gifts from the IRS. For low-income taxpayers, the
Credit for the Elderly is a provision that can save you as much as $3,750 to
$7,500 on your tax return, depending on your filing status and your sources of
income. As you can see below, though, the income limits for this particular
credit are quite restrictive, and so relatively few people will qualify for the
credit. Not only do you have to be below certain maximums for overall income,
you also can't have too much in certain specific types of income, including
pension and Social Security benefits.
|
Filing Status
|
Adjusted Gross Income Must Be Less Than:
|
AND Nontaxable Social Security, Pension, Annuity, or Disability
Income Must Be Less Than:
|
|
Single, Head of Household, or Qualifying
Widow(er) with Dependent Child
|
$17,500
|
$5,000
|
|
Married Filing Jointly With One
Spouse 65 or Older
|
$20,000
|
$5,000
|
|
Married Filing Jointly With Both
Spouses 65 or Older
|
$25,000
|
$7,500
|
|
Married Filing Separately and
Lived Apart From Spouse Throughout the Year
|
$12,500
|
$3,750
|
DATA SOURCE: IRS.
Fortunately, there's also an additional break
available to reduce your taxable income that anyone can enjoy regardless of
income. If you're 65 or older and claim the standard deduction on your 2019 tax
return, then you'll be able to get an extra amount tacked on to the regular
figure. Single filers can add $1,650 to their standard deduction, while married
filers can add $1,300.
3. Social Security
still thinks you'd be early to claim benefits
In the distant past, the full retirement age for Social Security
was 65. That's no longer the case, with those turning 65 in 2020 having a full
retirement age of 66 and two months.
What that means is that if you go ahead and claim
your retirement benefits on your 65th birthday, you won't get the full amount
you'd receive if you waited until full retirement age 14 months later. Instead,
the Social Security Administration will cut your full retirement benefit by
7.78% -- five-ninths of a percent per month you claim early, multiplied by 14
months.
Those who start taking Social Security benefits
at 65 and keep working also have to worry about potentially forfeiting some of
their benefits. You can earn up to $18,240 in 2020 without losing any benefits,
but above that figure, each $2 you earn will cost you $1 in annual benefits.
However, there's a special rule that if you stop working in the middle of the
year, you're entitled to receive Social Security for the months during
which you were retired -- even if you'd otherwise forfeit more of your benefits
due to the earnings test.
Congratulations on
reaching 65
Reaching age 65 is a milestone that you can be
proud of, and for many, it's a turning point in their lives. Understanding the
financial ramifications of turning 65 is useful in helping you plan for a happy
and secure retirement.
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