Historically, most Americans have targeted reaching age 65 as a milestone for retirement. Even though people's life expectancies have gotten longer, 65 is still an important age for those contemplating retirement. Even if you decide to retire at some time other than your 65th birthday, it's still important to understand the implications of this key date. Let's look more closely at what those who are turning 65 in 2017 need to know.
Get the federal tax breaks you deserve
The Internal Revenue Service rewards those who reach age 65 with some additional tax breaks. The most commonly taken is the standard deduction, for which seniors are entitled to take a larger amount. For joint returns in 2016, standard deductions rise by $1,250 or $2,500 depending on whether one or both spouses is 65 or older. Single filers get a $1,550 boost to their standard deduction.
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Also, the Credit for the Elderly applies to low-income taxpayers who have reached age 65. The maximum amount of the credit is between $3,750 and $7,500. However, strict income limits apply to the credit, and even if your gross income is below the limits, additional restrictions apply to nontaxable Social Security and pension income. The chart below gives a summary.
|
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.
In no case can your credit exceed your tax liability. Nevertheless, this can effectively wipe out tax bills for those who qualify and have low enough income levels.
The biggest perk for 65-year-olds: Medicare eligibility
The vast majority of American workers and their spouses become eligible for Medicare when they turn 65. But signing up for Medicare isn't automatic unless you're already getting Social Security benefits. If you want to participate in Medicare -- and most people should -- then you can begin signing up for the program as early as three months before turn 65. By signing up early, you can ensure that your coverage will start on the first day of the month of your 65th birthday. Your initial enrollment period extends for three more months past age 65, but delays in starting your coverage will apply if you wait that long.
Those who are still working at age 65 at a job with health benefits or who have coverage through a spouse's group health plan might not need to enroll in Medicare immediately. In some cases, a special enrollment period applies to allow you to enroll in Medicare later, once your group health coverage is no longer available. However, if you work for a small employer, you might still need to enroll in Medicare, as it might be your primary coverage option. Be sure to go to your HR department to get the information you need to make a smart choice.
Be mindful of Social Security's full retirement age
As popular as 65 is as an age to retire, it's no longer the full retirement age that the Social Security Administration recognizes. If you're turning 65 in 2017, your full retirement age is 66. That means you won't get full benefits if you claim them this year.
That said, you can claim Social Security benefits. They'll just be reduced. If you claim right on your 65th birthday, then you'll receive about 6.7% less in your monthly payment than you would get at full retirement age. Claiming before or after your birthday will cause a proportionately larger or smaller reduction.
Moreover, if you keep working even though you won't reach full retirement age in 2017, you could forfeit any Social Security benefits you claim. Specifically, if your earnings are more than $16,920 in 2017, then you'll lose $1 of annual benefits for every $2 you earn above that amount. Keep in mind, though, that if you stop working mid-year, then you can get a full check for any month during which you're retired -- even if you had earned enough prior to retiring that you would otherwise have had to forfeit those benefits.
Your 65th birthday is a big turning point in your life. Financially, it's crucial to make smart decisions with your money. By knowing these essential elements, you'll put yourself in the best possible position as you enter retirement.
Retirement planning can seem complicated and scary, but with the right plan and a long-term approach, it's something anyone should be able to tackle. It's also one of the most important things.
