In our last article, we touched on three key facets of your financial position to review and assess at age 50 or thereabouts. Specifically, we addressed the topics of (1). Asset & Investment Risk; (2). Debt Reduction; and (3). Life Insurance Cost & Your Physical Health. We overviewed how the decisions you make (or fail to make) in each of these regards could follow you into retirement and either hinder or help you in the way of meeting your retirement goals.
Now let’s fast forward to what is, for most, the next major age-based milestone in their journey toward retirement–age 65. Being that age 65 is the average age of retirement in New Hampshire, this is, for most, the end of that journey. However, there are a few key retirement and financial steps that ought to be considered which could affect your decision to end that journey before or at 65, or, perhaps, keep on going for a little bit longer.
1. Social Security Maximization Options
Many view Social Security as an inflexible tool of which they are at the complete mercy of–subject to whatever benefit amount the United States government has calculated for them at the time they decide to retire. A major reason many hold this view is, whether because of how pop culture has infected our thinking or otherwise, age 65 has become so closely associated with “the age at which you retire” and likewise retirement so closely associated with Social Security. However, Social Security doesn’t automatically have to happen when you retire, nor is it an entirely inflexible tool you have no control over.
Firstly, while age 65 was the full retirement age (FRA) when Social Security first began, this has been progressively adjusted depending on the year you were born. For most everyone today who will be considering taking Social Security benefits, their FRA will be somewhere between age 66 and 70. Triggering your SS benefits before your FRA, down to age 62 (the first year you’re eligible to receive SS benefits) means a lower benefit amount.
Ok, so is Social Security only negatively flexible? No, it can be used in your favor, especially if you’ve properly worked it into your retirement plan. If you’ve reached and then surpassed your full retirement age, now your Social Security benefit begins to be positively flexible, increasing each year you “delay” triggering these benefits, up to age 70.
Timing is key when it comes to implementing Social Security benefits into your retirement plan, but has even further complexity than described above. This is why we recommend sitting down with a financial professional who will take a full-scale look at your situation and help you decide when is best for you to initiate this income stream. For those we work with, we use a proprietary software to create a Social Security Maximization Report. By factoring in both spouses’ life expectancies, their FRAs, and spousal benefit, we’re able to develop their optimized filing strategy–timing it to maximize their SS benefits. By doing so, we’re often able to increase those we work with’s lifetime SS benefit by $60,000-$120,000.
2. 65–A Key Age for Medicare
Now, while age 65 isn’t necessarily the magic age for SS, it is the magic number for enrolling in Medicare. Keep in mind that you’ll be automatically enrolled in Medicare if you’ve already enrolled in Social Security before age 65. However, if you are able to strategically defer your SS benefits until after you’ve turned 65, then you will have to manually enroll in Medicare.
How do you do that and do you have a time limit to enroll? If you do end up strategically deferring SS until after 65, you can enroll in Medicare from the Social Security Administration website. The standard time limit is a 7-month initial enrollment period (IEP). These 7 months are:
- The 3 months before the month of your 65th birthday
- The 1 month of your 65th birthday
- The 3 months after your 65th birthday
Failing to enroll during this period could cost you a late enrollment penalty–one that increases the longer you delay.
Enrolling in Medicare once eligible is one of the pillars of your retirement plan since it will lower expenses for you and your employer (if you have health coverage through them). This is one of the primary reasons age 65 is a key age as it relates to your retirement plan. Don’t delay!
3. Saving in Your 60s
When most people think about their 60s–especially their mid-to-late 60s, they’re thinking less about growing their retirement savings and more about reducing it. And while it is true that there’s a good chance you’ll be relying on your hard-earned retirement investments to some degree at this point, it doesn’t mean the savings have to stop.
As long as you’re still receiving some form of earned income you can continue to contribute to tax-advantaged retirement investment accounts, such as Roth IRAs, traditional IRAs, and 401(k)s.
What this doesn’t have to mean: continuing to work at full pace throughout your sixties. What this could mean: working employed or self-employed at a significantly reduced rate that still allows you ample time to enjoy this period in your life.
A quick example: Say you’re able to reduce your work at age 60 and between your earned income and income from retirement savings, able to meet your expenses while deferring your Social Security enrollment so as to maximize your benefit. This all the while contributing $7,000/year until age 70 to an investment account that allows your money to grow tax-deferred. If you assume a moderate growth rate, this winds up nearly $100,000 in additional retirement savings you may not have even considered. That could make your retirement more secure, or, at the very least, more comfortable.
This shouldn’t be done rashly, however, as there could be tax consequences especially depending on if you’re receiving SS benefits at the same time. Sitting down with a fiduciary financial professional who not only is a financial advisor, but has a depth of retirement planning knowledge, is key to making sure your retirement plan is optimized. This is especially significant considering there is no blanket answer for everyone. Each individual or couple has their unique savings, expenses, plans, and goals.
Are you or someone you know approaching, at, or recently passed 65 years of age and would like to learn how to strategically optimize Social Security benefits, minimize taxes, and maximize retirement savings? If so, give us a call at 866-360-2724, email us at mcole@theivyag.com, or schedule a time to Speak To An Advisor. It’s complimentary with – ag no obligation.
