Age 65 is a key time to take advantage of special savings opportunities, make important decisions about Medicare and Social Security, and in general take stock of your progress toward your retirement goal.
Sign up for Medicare (or not). For most people, turning 65 brings big changes in health coverage. You can sign up for Medicare anytime from three months before to three months after the month you turn 65. If you’re already receiving Social Security benefits, you’ll automatically be enrolled in Medicare Part A and Part B when you turn 65 and will receive your Medicare card in the mail three months before your 65th birthday. If you’re still working and don’t want Part B yet, you can send back the card and have it reissued for Part A only.
If you haven’t claimed Social Security benefits yet, you’ll need to take steps to enroll in Medicare. If neither you nor your spouse has employer health coverage, you should sign up for Part A and Part B. For an online application, even if you aren’t signing up for Social Security, see How to Apply Online for Just Medicare. Also see Social Security’s Apply Online for Medicare booklet for more information. The decision becomes more complicated if you’re still working and have employer coverage. See When to Sign Up for Medicare – and Why You Might Want to Delay for more information. Also see What You Need to Know About Enrolling in Medicare.
2) Fill in Medicare’s gaps. If you don’t have retiree health insurance, you’ll probably want a Medicare supplement policy (also known as medigap) to help cover Medicare’s co-payments and deductibles and a Part D drug plan to cover prescription drugs. Or you can get a Medicare Advantage plan, which provides medical and drug coverage from a private insurer. You have six months after you sign up for Medicare Part B to pick a medigap policy (after that, you can be denied or charged more for medigap because of your health). Most state insurance departments have price lists for the medigap plans available in their state. See NAIC.org for links. You can also find helpful information from the Medicare Rights Center. For more information, see How to Fill Medicare Coverage Gaps.
You can sign up for Part D when you enroll in Medicare Part B or, if you have other drug coverage (such as through an employer plan), you generally have 63 days after losing that coverage to sign up for a Part D plan without paying a late-enrollment penalty. For more information, see How to Save With a Medicare Prescription Drug Plan. Or you can enroll in a Medicare Advantage plan when you enroll in Part B or after losing other coverage. See When Can I Join a Health or Drug Plan?
You can also switch to another Part D or Medicare Advantage plan during open enrollment every year from October 15 to December 7. Shop for plans available in your area with the Medicare Plan Finder. You can get help with your decisions from your State Health Insurance Assistance Program. Also see When Can I Join a Health or Drug Plan for more information.
3) Make HSA changes. If you have a high-deductible health insurance policy, you’ll need to stop making HSA contributions when you enroll in Medicare. You lose eligibility to contribute to the HSA on the first day of the month that you turn 65 and enroll in Medicare, but you can contribute for the portion of the year before then. For example, if you turn 65 in October and enroll in Medicare, your maximum contribution would be 9/12 of the full year’s contribution, says Eric Dowley, senior vice president of health savings accounts for Fidelity. (You can continue to make HSA contributions after age 65 if you don’t enroll in Medicare Part A or Part B; see When to Sign Up for Medicare – and Why You Might Want to Delay for more information about these rules.)
Starting at age 65, you can pay premiums for Medicare Part B, Part D and Medicare Advantage (but not medigap) tax-free from your HSA, in addition to paying your deductibles, co-payments, a portion of long-term-care premiums based on your age ($3,900 in 2016 if you’re between ages 61 and 70) and other eligible expenses that aren’t covered by other insurance. You can also take penalty-free distributions from your HSA for any reason starting at age 65, but you’ll have to pay taxes on the withdrawals, so it’s better to use the money tax-free for eligible medical expenses.
4) Start planning your Social Security strategy. Age 65 is actually not a key age for Social Security anymore. The full retirement age is 66 for people born in 1943 through 1954. You can take Social Security benefits as early as age 62, but your benefits will be reduced for the rest of your life based on the number of months before full retirement age you start benefits (see Early or Late Retirement? for a calculator). Taking your Social Security benefits this year at age 65 will reduce your monthly check by about 7%. If you’re still working and take benefits before full retirement age, they could be reduced further if you earn more than a certain amount of money from a job or self-employment. See How Social Security Cuts Your Benefits If You’re Still Working.
But age 65 is a good time to start thinking about when to take benefits. If you wait until after your full retirement age to take Social Security benefits, you’ll receive a delayed-retirement credit that boosts your benefit by 8% for every year you wait until age 70. You can estimate your Social Security benefits under various scenarios by using Social Security’s retirement estimator. See Best Strategies to Boost Your Social Security Benefits for more information. Also see Some Social Security Loopholes Will Still Be Around in 2016 for new rules that can affect your claiming strategies.
5) Continue to make the most of catch-up contributions. If you’re 50 or older anytime in 2016, you can contribute an extra $1,000 to IRAs and an extra $6,000 to 401(k)s – bringing your contribution total to $6,500 for IRAs and $24,000 for 401(k)s. See Retirement Plan Contribution Limits for 2016. If you stop working but your spouse still earns some income for the year, he or she can contribute to an IRA on your behalf. See Contributing to a Spouse’s IRA in Retirement for more information.
6) Start preparing for retirement-savings withdrawals. Now that you’re over age 59½, you can withdraw money from your retirement-savings accounts without an early-withdrawal penalty. But you may need to pay taxes on your withdrawals. See Tax Planning for Retirement for more information. You don’t have to start taking required minimum distributions from your IRAs and 401(k)s until age 70½, but you will have more control over the tax bill if you gradually shift money out of the accounts now. You can roll over some money from traditional IRAs to a Roth IRA every year — ideally an amount that won’t exceed the top of your tax bracket – which will allow you to withdraw less money when you have to take your RMDs. (Money in Roth IRAs is not subject to RMDs, although you can’t avoid the RMD in the year of the conversion.)
Be careful of conversions, however, if you plan to sign up for Medicare Part B in the next year or two. If your adjusted gross income plus tax-exempt interest income is more than $85,000 if you’re single or $170,000 if you’re married filing jointly (including the amount of money you convert), you’ll have to pay the Medicare high-income surcharge. See How Much Will Your Medicare Part B Premiums Cost in 2016? for more information. Also see 8 Things Boomers Must Know About RMDs From IRAs.
7) Give yourself a retirement checkup. Even if you plan to work for a few more years, this is a great time to assess your progress toward your retirement goals. If you discover that you’re falling short, you still have time to save more money, work longer or make other changes to your plan. See How Much You Really Need to Retire for more information.
By Kimberly Lankford, kiplinger.com