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.
Image source: Getty Images.
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.
