Retiring at 65 and the Decisions You'll Need to Make

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Many Americans retire at 65 because that is when Medicare health coverage begins. Enrolling in Medicare isn't the only thing you'll need to do at 65, though. Here are five retirement decisions you'll need to make when retiring at 65.

Health Care

Medicare benefits begin at 65 for most people, making it easier to retire at 65 than at age 60 or 62. Medicare won't cover all your health care expenses, though. Medicare has extensive out-of-pocket costs. For example, an inpatient hospital stay has a $1,484 deductible per benefit period in 2021, and you can have multiple benefit periods in one year.

To gain additional coverage, many retirees purchase a Medicare Supplement (also called a Medigap policy) or a Medicare Advantage plan. A Medicare Supplement pays after Medicare, while a Medicare Advantage plan pays instead of Medicare. You may not need one of these plans if you have retirement health insurance or insurance through a working spouse. Choosing a health insurance plan is one of the most important decisions you'll need to make at 65.

In addition to traditional health care coverage, you'll also want to give thought to how you want to handle long-term care expenses that you may incur later in life. Long-term care is not just about medical care. It encompasses needing help with daily living activities such as cleaning, cooking, and bathing. Many seniors need this type of assistance. You can either apply for a long-term care insurance policy or pay for these services out-of-pocket as you need them.

If you have limited income and assets, you may qualify for Medicaid, which helps pay for long-term care services.

Starting Social Security Now or Later

Consider weighing the pros and cons of starting Social Security at 65 versus waiting a few more years. Why? Your full retirement age (FRA) is going to be age 66 or later, and you'll receive a reduced benefit if you start Social Security before your FRA.

If you wait to retire until after your FRA, you'll receive a higher benefit. Your benefit will continue to increase until age 70, which is the latest you should start your Social Security retirement benefits. Whether it's worthwhile to wait depends on your financial situation. One consideration is that if you're married, this higher benefit amount becomes the survivor benefit, providing a form of life insurance for either one of you who may be long-lived. 

Consolidating IRAs

If you have money in a retirement plan like a 401(k), you’ll need to determine if you should roll this money over to an IRA. It's easier to manage your retirement savings if you consolidate all your retirement accounts into one IRA account. If you decide to go this route, you'll need to decide what financial institution to use. You can also hire a financial advisor to assist you.

IRA accounts must be maintained under separate names, so you cannot combine your retirement accounts with your spouse’s retirement accounts. What you can do is make sure you name each other as the beneficiary of the accounts, so if something happens to your spouse, their retirement accounts belong to you and vice-versa.

Taking Retirement Account Withdrawals Now or Later

The IRS requires you to take distributions from IRAs and other qualified retirement plans beginning at age 72. These are called Required Minimum Distributions, or RMDs. However, you can withdraw funds before this age, and sometimes, for tax reasons, it makes sense to do so. If you delay Social Security and/or have a spouse younger than you, there are often big tax planning opportunities that exist between ages 65 and 70.

If your taxable income is low during these years, taking money out of your IRA might make sense and help you save on taxes in the long run. It might be worthwhile to have your accountant, tax preparer, or retirement planner run a multi-year tax projection for you to see when you should begin taking withdrawals.

Seeking Professional Advice

Many people choose to hire a financial planner or investment adviser when they're planning for retirement. In many cases, an independent retirement planner can help you minimize taxes during retirement, advise on when you should begin Social Security benefits, show you how your savings can generate retirement income, and help you weigh the pros and cons of investments like annuities or financial products like a reverse mortgage.