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The Perils of Retirement at Age 65

Your age plays a big role in which retirement benefits you qualify for.

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The Perils of Retirement at Age 65
Alamy
By Emily Brandon

Age 65 is the year we traditionally associate with retirement, but this age is declining in significance. Only one major retirement benefit still kicks in at this age, and plenty of people aspire to retire at both earlier and younger ages. Here's a look at why age 65 no longer resonates as a target retirement age:

You won't qualify for full Social Security benefits. While you can begin Social Security payments as early as age 62, you won't get the full amount you have earned unless you sign up at your full retirement age. The full retirement age used to be 65 for people born in 1937 or earlier, but has since been increased to 66 for most baby boomers and 67 for everyone born in 1960 or later. If you claim your Social Security benefit at age 65 you will get a reduced monthly payment compared to waiting until your full retirement age. For example, a worker born in 1965 will get 13.3 percent smaller monthly payments if he signs up at age 65 instead of waiting until his full retirement age of 67. Spousal benefits are also reduced if you claim them at age 65. While spouses are entitled to 50 percent of the higher earner's benefit payment if it's more than they can get based on their own work record, if you begin receiving spousal payments at age 65 you will get only 41.7 percent of the higher earner's payments.

You have a small window in which to sign up for Medicare. Perhaps the most compelling reason to retire at age 65 is Medicare eligibility. Once you turn 65 you no longer need to hold on to a job for the health insurance coverage. You can sign up for Medicare beginning three months before your 65th birthday and start coverage the month you turn 65. It's important to sign up during the seven-month window around your 65th birthday, because your Medicare Part B and D premiums can be increased if you enroll later. Beginning the month you turn 65 there is also a six-month Medigap enrollment period during which you can buy any Medigap policy sold in your state. If you don't sign up then you could potentially be charged significantly higher premiums or even denied coverage. If you are still working at age 65 and have a group health plan through your or a spouse's job, you should sign up for Medicare within eight months of leaving the position or health plan to avoid the higher premiums.

You can start retirement account withdrawals, but aren't forced to. At age 65 you are old enough to avoid the early withdrawal penalty on 401(k) and IRA distributions. The 10 percent penalty is typically no longer applied to retirement account withdrawals once you turn age 59½. However, you will have to pay income tax on your withdrawals from traditional 401(k)s and IRAs. But 65-year-olds aren't yet required to withdraw money from their traditional retirement accounts. They can continue to defer income tax on their savings and let the money grow for another five years. Distributions from traditional IRAs and 401(k)s become required after age 70½, and a 50 percent penalty is applied to missed distributions.

The length of retirement. If you retire at age 65 and live until 90, you will be retired for 25 years. It can be incredibly difficult to save up enough to pay for over two decades of leisure time. You will also need to manage your money so that it will last throughout that entire period of time, which could include inflation, stock market volatility and health problems or other emergencies that require you to dip into the principal. Working even a year or two past age 65 gives you more time to save, your investments more time to grow, increases your monthly Social Security benefits due to delayed claiming and shortens the period of retirement you need to pay for.

If you're working primarily for the health insurance you get through your job, retiring at age 65 when Medicare eligibility kicks in can make sense. But if you're interested in timing your retirement closer to the year you max out your Social Security benefit or are required to take retirement account withdrawals, you'll probably need to pick an alternative retirement age.

--Emily Brandon is the senior editor for Retirement at U.S. News. You can contact her on Twitter @aiming2retire, circle her on Google Plus or email her at ebrandon@usnews.com.


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cqdeed

Retired from military at age 39. Spent a year doing odd jobs. Got a permanant job with construction materials company. My health started going downhill so I retired permanantly at age 51. Heart went south at age 54. Expected death more sooner than later (as in...Will I be here tomorrow?). Diagnosed with diabetes at age 61. Took full SS at age 66. Plan to not touch my 401(k) for 4 more years. Income is military pension (untill I die), VA disability (untill I die), and SS (until it runs out of money). After 15 years of retired life I can say it is worth all the blood, sweat, and tears I put into getting there. I highly recommend it. If you can do it early, do it !

June 02 2014 at 11:13 PM Report abuse +1 rate up rate down Reply
Winnie

I disagree. You have worked hard all your life, Your kids are grown, and probably your house is paid for, your health is generally pretty good. So retire at 65 and enjoy life for the few or long years you have left. Do things you never had time for. You may last a few years, you may last a long time. Travel a bit while you still feel like it. Get a hobby or two. Relax. As you get older you won't need as much money to live on, either. You probably have about everything you need. Sleep in, stay up late. Make friends. And give someone else your job that needs to work. From one who retired at 65 and is still enjoying life.

June 02 2014 at 3:29 PM Report abuse +1 rate up rate down Reply
gmsexton

what idiot didn't know every part of this article/ better yet, probably far better than it was even covered. of course they know about medicare, and when to sign up, of course they know at 59.5 the 10 % penalty for early withdrawl goes away, and that they pay income tax on withdrawls. or that you aren't forced to make a withdrawal until the year you turn 70. or that the federally recognized retirement age is moving up depending on the year you were born. most 12 year olds know this information now. this article was about as informative as saying when it rains things get wet, then the water evaporates and things dry out....

June 02 2014 at 1:57 PM Report abuse +2 rate up rate down Reply
queencelt

This article is out of date. Thanks to Affordable Health Care (a/k/a Obamacare), you can buy affordable health insurance before you're 65, so you don't need to hang on to your job just for the insurance. Just another "work until you drop" propaganda article based on people living until they're 90. What if you only live to be 65? Then you've spent your whole adult life working.

June 02 2014 at 11:15 AM Report abuse rate up rate down Reply
frank1946

I took 65..............found a rich widow and moved into her Mansion in Dallas, Tx.

Too much Food, Booze and Fun...........won't make 75 now !

All the parts still work so I'm good to go for 2014.

June 02 2014 at 9:59 AM Report abuse rate up rate down Reply
balaland

Working till retirement age is becoming a joke,down-grade if you can, if you have a mortgage sell and buy a house with the cash, lots of cheap-ones out there, freeze all assets , then find a job within your means....They are'nt doing all these re- finances for nothing, I believe that they are preparing for the rise of the Inflated Dollar, and they want to cut their losses... Refinance without an attorney , TOOO easy, READ THOSE CONTRACTS, " Those that don't Know Will Pay "..........

June 02 2014 at 9:00 AM Report abuse +1 rate up rate down Reply
patriot1too

It has become clear that the govorment propaganda is to be a sheeple drone worker bee paying taxes until the day you drop dead. They would prefer that you drop dead while still on the clock aiming at some set age that keeps moving based on how dumbed down they can make us. Retire at 62 and start drawing. Enjoy the down time that you have worked for all your life. Due to the liberal extremisist current White House if you continue to work you are only paying for the criminal illegal immigrants and thug college fees for them. That wont change until we get a better person in our White House. America must start taking care of our elderly more then the tide of illegals and thugs that the corrupt democrats depend on for votes along with the dumbed down youth that could care less about anything. Enjoy your retirement. See you on the beach. God bless America.

June 02 2014 at 8:34 AM Report abuse +6 rate up rate down Reply
1 reply to patriot1too's comment
queencelt

I agree with the first couple of sentences, but you are wrong to blame the current administration. The "drone worker bee" syndrome is a Republican affliction. Just look at how the right wing hates the unemployed!

June 02 2014 at 11:18 AM Report abuse -1 rate up rate down Reply
neveragain000000

And then again you can start collecting your social security early because in years to come there may not be any social security if this country continues on its path of spending ourselves into destruction.

June 02 2014 at 8:11 AM Report abuse +3 rate up rate down Reply
Mike

More great news...Most of us in our early 50's are going to be in trouble by age 65 to 67. Trying to play catchup on my 401K after working for smaller companies that had no plan. They'll probably move the age again before I get close too.

June 02 2014 at 7:29 AM Report abuse +4 rate up rate down Reply
redliontat

collect at 62 ... I did he math and I would have years to live before I was 'giving up anything' but at that age I would not be as active needing the money. Also I realize the supposition is that you saved money with a 401k, but I am the last of the generation that has a pension, and I can live on pension and SS alone without touching any savings. So go by your own gut and financial advisor and not all these scare tactics. I was told when I was younger I needed so much money to retire. Well I did not and I live a good life. And I am not withdrawing from savings like I was told I would have to do to maintain my lifestyle. In fact, I need less money retired than when working.

June 02 2014 at 12:59 AM Report abuse +5 rate up rate down Reply