It’s a pivotal age for retirement planning — even if you aren’t ready to retire yet
By Kimberly Lankford,
Gone are the days when most people retired at 65, received a gold watch, then lived off their pension and full Social Security benefits. But 65 is still an important age financially for retirees and near retirees, in terms of both what you get and what you don’t.
With a record number of baby boomers set to reach that milestone in 2024 — more than 11,000 a day, according to Census Bureau projections — it’s essential to know the rules for Social Security, health care, taxes and retirement savings for age 65 so you can make the most of your benefits and avoid costly mistakes.
1. You still haven’t reached full retirement age for Social Security
This is a big change from your parents’ retirement. For decades, 65 was the magic age for receiving full Social Security benefits — 100 percent of the monthly payment you qualify for based on lifetime earnings. But that age started to increase for people born in 1938 and later. It’s now between 66 and 67 for people born between 1955 and 1959 (going up by two months for each birth year) and will top out at 67 for people born in 1960 and later.
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You can still take early benefits starting at age 62, but your payouts will be reduced for the rest of your life, based on the number of months before your full retirement age. For someone born in 1959, turning 65 in 2024, the full retirement age is 66 and 10 months. If they sign up for Social Security on their 65th birthday, they’ll be enrolling 22 months early.
“Someone taking benefits 22 months early would see their full retirement age benefit reduced by about 12 percent,” says Tim Steffen, director of advanced planning at wealth management firm Baird. (You can get an estimate of your benefit at different claiming ages with AARP’s Social Security Calculator.) Taking benefits early can also reduce the survivor benefits your spouse could receive after you die.
Also, if you’re still working and are younger than full retirement age, your Social Security benefits may be reduced based on your income.
2. You can sign up for Medicare
This one hasn’t changed — you still become eligible for Medicare coverage at age 65. But the sign-up rules are tricky if you haven’t yet claimed Social Security benefits (or Railroad Retirement Board benefits).
Here’s how it works: If you started Social Security at least four months before your 65th birthday, you’ll automatically be enrolled in Medicare at 65 (Puerto Rico’s rules are different). If you haven’t claimed Social Security yet, you need to take steps to enroll in Medicare on your own.
How Much Will You Get From Social Security?
Try AARP’s Social Security calculator to get an estimate of your future benefits.
“If you’re not getting Social Security, you won’t get automatically enrolled — you need to be proactive,” says Joanne Giardini-Russell, owner of Giardini Medicare in Howell, Michigan, which helps people with Medicare issues and supplemental coverage.
You have a seven-month window to sign up for Medicare: the three months before your birthday month, the birthday month and the three months after that (it’s called your initial enrollment period). Say your birthday is April 15; your initial enrollment period starts Jan. 1 and runs through July 31. You can sign up for Medicare online at the Social Security website, even if you aren’t signing up for Social Security benefits yet.
Unless you’re working and have health insurance from your employer (or your spouse’s employer), you usually need to sign up for Medicare at age 65. Medicare Part A, which covers hospitalization, is free for most people, so they generally sign up at 65 even if they’re working (unless they want to contribute to a health savings account, or HSA).
But Medicare Part B, which covers doctor and outpatient services, costs $174.70 per month in 2024 (more for high earners), so some people delay signing up for Part B while they are working. You must sign up within eight months after you leave your job and lose your employer’s coverage to avoid a late enrollment penalty of 10 percent of the cost of Part B for every 12 months you should have been enrolled in Medicare but were not.
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Also, if you don’t have health insurance from an employer with 20 or more employees, Medicare generally becomes your primary coverage at age 65 and your other insurance becomes secondary (including retiree health benefits and COBRA coverage). If you don’t sign up for Medicare at that point, you could have expensive gaps in coverage.
3. You can use your HSA for more expenses
A health savings account can provide a triple tax break:
- Your contributions are tax-deductible (or pretax if through your employer).
- The money grows tax deferred, and you can withdraw it tax-free for eligible medical expenses at any time.
- When you turn 65, you can withdraw the money tax-free for a broader range of medical expenses, including Medicare premiums.
You have to stop making HSA contributions when you enroll in Medicare Part A or Part B, but some people who are still working for a large employer delay signing up for Medicare so they can keep contributing. For you to be eligible to make HSA contributions for 2023, your policy must have a medical insurance deductible of at least $1,500 if you have self-only coverage, or $3,000 for family coverage. Those limits increase to $1,600 and $3,200, respectively, in 2024.
Even if you can no longer make new HSA contributions, you can keep the money growing in the account for future expenses. Before age 65, you usually must pay income taxes plus a 20 percent penalty on money you withdraw for anything other than qualified medical expenses. At 65, the penalty goes away — you only owe regular taxes on nonmedical withdrawals. (Withdrawals for qualifying medical purposes remain tax-free.)
“I always preach to my clients that they can use it as a second 401(k),” says Steven Hamilton, founder of Hamilton Tax & Accounting in Grayslake, Illinois.
And you have more ways to avoid the taxes. As a 65-plus HSA owner, you can take tax-free withdrawals to pay premiums for Medicare Part B, Part D prescription drug coverage and Medicare Advantage plans (but not Medigap) for yourself and your spouse, says Roy Ramthun, president of HSA Consulting Services.
4. You get a bigger standard deduction and other tax breaks
Starting in the year you turn 65, you qualify for a larger standard deduction when you file your federal income tax return.
The standard deduction for the 2023 tax year is generally $13,850 for single filers, $20,800 for heads of household and $27,700 for married couples filing jointly. Single filers and heads of household who are 65 or older qualify for an extra $1,850 standard deduction. Married couples can get an extra $1,500 if one spouse is 65 or older, $3,000 if both are.
The standard deduction for 2024 will be $14,600 for singles, $21,900 for heads of household and $29,200 for joint filers. The extra deductions for 65-plus taxpayers go up to $1,950 for individuals and $3,100 for couples.
Low-income people 65 or older may also qualify for a tax break called the Credit for the Elderly or the Disabled. The IRS has more tips for older taxpayers.
You may also qualify for extra state or local tax breaks at 65. “A lot of state and local jurisdictions freeze property tax assessments for people age 65 and older,” says Hamilton.
Some states subtract a fixed dollar amount from your home’s assessed value or your property tax bill. Older veterans and those with service-related disabilities may qualify for additional property tax breaks. Contact your state department of revenue to find out if you are eligible for any breaks.
5. You can still save for retirement
If you’re still working at 65 — even if it’s just part-time or freelance — you can continue to save for retirement. You can contribute to a traditional or Roth IRA at any age, as long as you earned some income from working.
For the 2023 tax year, a 65-year-old saver (or anyone 50-plus) can contribute up to $7,500 to an IRA. (If your work income was less than that, you can only contribute as much as you earned.) If you’re working and your spouse is not, you can also contribute up to $7,500 to a spousal IRA on their behalf, as long as they are also at least 50. The contribution limits rise to $8,000 for people 50 or older in 2024.
“It’s definitely still helpful to keep saving if they have the ability to,” says Patrick Carney, a certified financial planner in Lancaster, Pennsylvania. “If someone works from age 65 to 75 and contributes $8,000 each year to a retirement account that grows at 5 percent a year, by age 75 they’d have more than $100,000 saved.”
Your contributions may also make you eligible for the “Saver’s Credit,” a federal tax break for people with lower incomes who put away money for retirement.
Taxpayers with 2023 adjusted gross income up to $36,500 for a single filer, $54,750 for a head of household or $73,000 for a married couple filing jointly can receive a tax credit for 50 percent of their contribution to a retirement account, up to a maximum credit of $1,000 per person. (Both spouses in a couple can take the credit if they both made qualifying contributions.) The income limits rise in 2024 to $38,250 for singles, $57,375 for heads of household and $76,500 for joint filers.
Kimberly Lankford is a contributing writer who covers Medicare and personal finance. She wrote about insurance, Medicare, retirement and taxes for more than 20 years at Kiplinger’s Personal Finance and has written for The Washington Post and Boston Globe. She received the personal finance Best in Business award from the Society of American Business Editors and Writers and the New York State Society of CPAs’ excellence