If you recently retired or are planning to retire within the next few years, there are certain things you should know and understand. All retirees should understand the process of starting Medicare benefits at 65, the required minimum distributions you'll need to take from your retirement accounts, and how the Social Security earnings test works. Here's an overview of these topics so you can determine how they'll affect you.

1. Not everyone needs to apply for Medicare benefits at 65

For many retirees, Medicare enrollment is an automatic process, meaning that an application for benefits is not necessary.

Specifically, if you're already receiving Social Security benefits when you turn 65, you'll automatically be enrolled in Medicare parts A and B on the first day of the month you turn 65. The same thing applies if you've gotten disability benefits from Social Security or the Railroad Retirement Board for 24 months, or if you have ALS (Lou Gehrig's disease).

Retired couple sitting at a table.

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If none of the above applies to you, you'll need to take about 10 minutes and sign up for Medicare on the Social Security Administration's website (or you can apply at your local Social Security office or over the phone). Your initial enrollment period begins three months before the month in which you'll turn 65 and extends for three months after that month, for a total window of seven months. While you aren't required to sign up during your initial enrollment period, not doing so can result in permanently higher premiums when you do.

You can read a thorough discussion of the application procedure and the things you should consider when applying for Medicare here.

2. You might need to start taking larger withdrawals from your retirement accounts

If you don't need the money in your retirement accounts, it may seem like a good idea to leave it alone or just withdraw a little bit. After all, the benefits of tax-free growth can really produce some amazing gains over time.

However, after you retire, you need to be aware of the required minimum distribution (RMD) rule. This rule applies to pre-tax retirement accounts, such as traditional IRAs and most 401(k), 403(b), and 457 accounts. After-tax accounts like Roth IRAs and money resulting from Roth 401(k) contributions are exempt from the RMD rule.

Basically, the RMD rule says that after you reach 70 1/2 years of age, you need to start withdrawing at least a certain amount of money from your account(s) each year.

Your RMD is calculated using life expectancy factors provided in IRS tables, as well as your account's balance at the end of the previous year. For example, let's say that I'm 72 years old and have a traditional IRA worth $500,000 at the end of 2016. Based on the life expectancy factor of 25.6 from the Uniform Lifetime Table (which most retirees use), I need to withdraw at least $19,531 from my account in 2017.

You have until Dec. 31 each year to satisfy your RMD requirement, with the exception of the year you turn 70 1/2, in which case you have until March 1 of the following year. It may not be a good idea to wait until the last minute for your first RMD, as doing so will result in two RMDs in the same calendar year, which can have serious tax consequences.

Whenever you decide to take yours, under no circumstances should you fail to take your RMD. The penalty for not withdrawing enough is one of the harshest assessed by the IRS for any offense -- 50% of the amount you were supposed to withdraw.

3. You can still work and collect Social Security

It's a common myth among retirees and pre-retirees that you cannot work and collect Social Security at the same time. This isn't true, but the Social Security "earnings test" can result in some or all of your benefits being withheld if you haven't yet reached full retirement age.

Specifically, in the eyes of the Social Security Administration, beneficiaries who work are divided into three categories:

  • If you will reach full retirement age after 2017, $1 of your benefits will be withheld for every $2 you earn in excess of $16,920 ($1,410 per month).
  • If you will reach full retirement age during 2017, $1 of your benefits will be withheld for every $3 you earn in excess of $44,880 ($3,740 per month).
  • If you have already reached full retirement age, the earnings test doesn't apply to you. You can work and earn as much as you'd like, and you'll still collect your full Social Security retirement benefit.

Finally, it's important to point out that if your benefit is reduced because of the earnings test, your future Social Security benefit after you reach full retirement age will be permanently increased as a result. So, while there is no guarantee that you'll live long enough to make back your withheld benefits, your benefits aren't technically "lost."

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