“Turning 65 is a major milestone for many Americans, as it is the traditional age at which they start thinking seriously about retirement.”
Many things change when celebrating your 65th birthday. For one thing, if you haven’t already retired, chances are good that you’ve set a retirement date and it’s not too far away. There are a number of things to be considered, advises the article “Points to ponder before turning 65” from Knox News.
The year you turn 65 is the year that you enroll in Medicare. Coverage begins at age 65, and the initial window to enroll opens three months before your 65th birthday and ends three months after. Miss that deadline, and there may be penalties when you do at last sign up for Medicare.
You can sign up for Medicare, whether you are working or not. If you are turning 65 and already collecting Social Security, you’ll automatically be enrolled in Medicare Parts A and B. You’ll need to sign up for Part D to avoid penalties, unless you have coverage through a spouse’s employer.
Here are some details:
- Part A covers hospital care and is generally free for enrollees.
- Part B covers diagnostic and preventive care. You pay for it with a monthly premium.
- If you’re still working at age 66 and have health insurance through your employer, you may choose not to enroll in Part B. You can sign up for Part A, at no cost, and delay Parts B and D.
- If you’re still working past 65 and have creditable coverage through your employer or your spouse’s employer, then you can defer Medicare.
Note that you may not get a full monthly benefit, if you claim Social Security right away. You can begin collecting Social Security at the young age of 62, but you won’t get the full monthly benefit that you otherwise would get unless you wait until you reach full retirement age. That date depends upon your date of birth. For most people turning 65 in 2020, that means full retirement age is 66 plus two months. Is it worth the wait? Your monthly benefit shrinks by 7.8%, if you file for benefits at age 65.
This is the time to check on your estate planning documents. If you don’t have these already, speak with an estate planning attorney to make sure that you and your family are protected by the following:
- General Durable Power of Attorney for Finances
- Durable Power of Attorney for Healthcare
- HIPAA release
- Revocable Living Trust
- Advanced Health Care Directive
- Last Will and Testament
It’s a great birthday to celebrate but be certain that you take care of the estate planning, Medicare and Social Security aspects of your life, as you prepare for this milestone.
Reference: Knox News (December 26, 2019) “Points to ponder before turning 65”
Suggested Key Terms: Social Security, Medicare, Part A, Part B, Estate Planning Attorney, Power of Attorney, Revocable Living Trust, Health Care Directive, Last Will and Testament
Is It Time for a Roth IRA or a Roth 401(k)?
“Roth accounts may make more sense than traditional, pre-tax ones, when savers believe their tax rate is lower now than it will be in retirement.”
This may be the best of all possible times to take advantage of the Roth IRA or Roth 401(k). These special retirement accounts let savers put away money after it has been taxed, which means that withdrawals are tax free. Contributions to a traditional IRA or 401(k) are made with pre-tax dollars, explains CNBC in the article “Why now might be a good time to save in a Roth 401(k) or Roth IRA” and taxes are paid on withdrawals made during retirement. The taxes paid on withdrawals are hoped to be lower because retirement income is usually lower than working income. However, with today’s historically low tax rates, there’s only one way for taxes to go—up—and that might mean that withdrawals from traditional accounts could actually be taxed higher than they are now.
The Tax Cuts and Jobs Act reduced income tax rates for individuals. The top marginal income tax rates for individuals dipped from 39.6% to 37%. However, the national budget deficit has grown to nearly $1 trillion in 2019, largely because of spending increases and big reductions in revenue because of the changes to the tax law. How’s this for size: the U.S. budget deficit is larger, as a share of its economy, than that of three dozen—yes, 36—other developed countries in the Organization for Economic Co-operation and Development.
Many experts think that this level is unsustainable and will have to lead to tax increases in the near future to bring in more revenues. One advisor noted that there’s a “giant economic storm that’s brewing,” and says there will be pressure to raise taxes.
Roth accounts would shelter savers from increases to the income tax rate. This won’t protect savers from non-income tax increases, such as a consumption tax or a wealth tax.
Nearly 18% of U.S. households have a Roth IRA, totaling $800 billion in assets nationally. By comparison, 26% of household have a traditional IRA, with a total value of $7.5 trillion. More companies are offering employees Roth 401(k)s to their workers.
Unless lawmakers extend the Tax Cuts and Jobs Act, income-tax rates for individuals are scheduled to increase to pre-tax law levels in 2026. Will lawmakers extend them? It is not likely, given the deficit levels. Therefore, saving in a Roth now could be a smart move.
Another viewpoint is that trying to outsmart the tax laws won’t pay off at all, and that Congress might decide to tax Roth accounts, if the government gets desperate for revenue.
That school of thought says that savers should divide their retirement savings in a 50/50 split and put the money in both Roth and traditional retirement accounts. The goal is to “tax-diversify,” just as you diversify investments.
Reference: CNBC (Dec. 27, 2019) “Why now might be a good time to save in a Roth 401(k) or Roth IRA”