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. Here are five retirement decisions you'll need to plan on making.

Medigap Plans or Medicare Advantage for Health Care

Medicare benefits begin at 65, which make it easier to retire at 65 than at age 60 or 62. Medicare, however, won't cover all your health care expenses. On average, expect it to cover about 50-60% of the health care costs you'll have. To gain additional coverage many retirees purchase supplemental insurance (a Medigap policy) or a Medicare Advantage plan. This is one of the 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 things as simple as needing help with several activities of daily living such as cleaning, cooking, and bathing. Many seniors need this type of assistance. You can either purchase long-term care insurance or plan on paying for these services out-of-pocket as you need them.

Starting Social Security Now or Later

You need to carefully weigh out 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 before your FRA. Your Social Security benefits continue to go up each month past FRA that you wait to collect.

After you reach FRA they accumulate something called delayed retirement credits. The higher benefit amounts you get by starting benefits at a later age can provide a much more secure retirement in your later years. And, if you are married, this higher benefit amount becomes the survivor benefit, providing a powerful form of life insurance for either one of you who may be long-lived. 

Consolidating IRAs

If you have money in a retirement plan at work, you’ll need to determine if you should roll this money over to an IRA. It is much easier to manage your retirement savings if you consolidate all your retirement accounts into one IRA account. You'll need to decide what financial institution to use, or 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 starting at your age 70 ½. 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 age 65 and 70.

If your taxable income is low during these years taking money out of your IRA will make a lot of sense and can help you save taxes in the long run. It may pay to have your CPA, tax preparer, or retirement planner run a multi-year tax projection for you to see when and how you should begin taking withdrawals.

Seeking Professional Advice

Cognitive decline has been proven to begin in your 60's. For this reason, many people choose to hire a financial planner or investment adviser in retirement. This also helps provide continuity for one spouse who may not be comfortable managing their own money if their other half passes first.

It's also a good idea to seek help if you are not sure how to generate income from savings and investments. In many cases an independent retirement planner can show you how to pay less in taxes during retirement, can advise on when you should begin Social Security benefits, can show you how your savings can generate retirement income, and can help you weigh out the pros and cons of investments like annuities, or strategies like the use of a reverse mortgage.