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Rick Nease, Detroit Free Press

Money: When Uncle Sam says you're old, you're old

  • Article by: LAURA FRENCH
  • October 2, 2012 - 2:51 PM

Quick quiz: When do you officially become "old"? The average Baby Boomer defines "old age" as 72, according to a 2009 Pew Research study, and feels nine years younger than his or her chronological age. But even if you think they're just numbers, the government considers 62, 65, 66 and 70 to be the major milestones of aging -- and agree or not, you can't afford to ignore them.

"Some decisions are irreversible and could result in reduced benefits later or increased taxes," said Scott Simpson, CFP, a financial planner for Focus Financial in Minneapolis. No matter when you plan to stop working, a visit to the Social Security office, as well as a financial planner and/or accountant, is a good idea, Simpson said. "It's best to get help and do your research up front."

Here are the government's milestones, and what they mean for your financial future.

Age 62: Social Security Eligibility

You can begin to draw Social Security benefits at age 62, but be aware:

• According to the Social Security website ssa.gov, the benefit at age 62 is "about 25 percent lower than what it would be if you waited until you reach full retirement age."

• If you are still earning, you may have your benefits reduced for every dollar you earn over the annual maximum, which is $14,640 in 2012.

• Claiming early retirement can also reduce the amount a surviving spouse may receive. On the other hand, according to the Social Security website, "If you qualify for benefits as a widow, widower or surviving divorced spouse on another record, you may choose to apply for survivor's benefits now and delay your retirement benefit until later."

Age 65: Medicare Eligibility

Decisions about which, if any, parts of the coverage to take at age 65 may involve your employer as well as your financial planner and insurance agent. See "Applying for Medicare Only": ssa.gov/retire2/justmedicare.htm

Part A, which covers in-patient care, is premium-free if you have paid in from your earnings. However, you won't get it automatically if you don't also apply for Social Security. Some employers require you to apply; some don't, according to Simpson.

There is a premium for Part B, which covers things like outpatient care and doctor visits. Part B comes automatically with part A unless you decline it. A higher income can mean a higher premium.

Your Part B premium will also increase every year you decline coverage, unless you are still covered by an employer's health plan.

Part D covers prescription drugs, and there can be consequences if you miss the age-65 claim deadline.

Age 66: "Full" Social Security for those born before 1959

At this point, your benefits are not reduced no matter how much you earn. However, what SSI calls "Delayed Retirement Benefits" can result in a payment of 132 percent of your full retirement benefit if you wait until age 70.

You may also need to decide whose benefits to claim. If you have been married for more than 9 months, or if you were previously married for more than 10 years and are not currently married, you may be eligible to apply for a benefit based on your spouse or ex-spouse's earnings. (Your claim won't impact their payment.)

Given the range of options available, the best bet is to schedule a conversation with a Social Security representative. The website advises applying about three months before the date you want to start receiving payments. The Social Security Planner can help you prepare for the meeting: ssa.gov/retire2/

Age 67: "Full" Social Security for those born after 1959

Age 70: Maximum Delayed Benefits

Unless you plan to forego Social Security altogether, this is probably as long as you want to delay filing for benefits. If you continue to earn money after age 70, you could still see a slight increase in the monthly check based on lifetime earnings.

Age 70 1/2: RMDs required on traditional IRAs

"Traditional IRAs and most other retirement accounts except Roth IRAs have Required Minimum Distributions [RMDs] for people over age 70 1/2," Simpson said.

However, as long as you are a W2 wage earner, check with your company to ask if you can fund their 401(k) plan. If you are still working for a company that has a 401(k) match, "get the match!" Simpson said. You are not required to take RMDs from that plan until you stop working for that company. You'll still need to take RMDs from other retirement accounts, Simpson added.

If you work for yourself, you can also continue to fund a SEP or Individual 401(k) based on IRS rules as long as you have earned income.

The Roth IRA also has no maximum age limit for continued contributions, as long as you have earnings that don't exceed the maximum limits.

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