With age comes the good and the not so good. You have gained a lifetime of experience and lessons learned from which others can benefit. But the years also take on toll on you physically. You start to move slower, creak in the joints, and may even find that daily activities are not as easy as they were only a short time ago. And full time employment may be a thing of the past. Even when you save for retirement, it is hard to realize just how expensive the costs associated with health and wellbeing become as we reach our golden years. Before you make the decision to work longer than age 65, consider all of the impacts on your financial status.
Delaying the date of retirement does have advantages, i.e. you can delay using your 401(k) and could even add to the total available funds by continuing to make contributions. But delaying your retirement date has downfalls as well. So be informed and plan smart.
Collecting Social Security checks or withdrawing funds from some tax-deferred retirement plans while you are employed could not only affect social security checks but also have some serious health care and pension ramifications. For instance, staying employed an extra year could push you into a higher tax bracket since you not only have employment income but also may have a required minimum distribution from traditional IRAs (for those over 70 ½), social security income and perhaps a pension annuity, meaning a higher yearly income. And if you continue saving for retirement while you work, your pension and any required minimum distributions will be higher, which can also affect your tax bracket. There are some ways to minimize the impact such as starting smaller distributions earlier to avoid being thrown into a higher tax bracket. So determine how close you are to the next tax bracket and carefully weigh your retirement and employment decisions with respect to long term impact.
Social Security Benefits
If you sign up for Social Security before the full retirement age your benefits may be withheld if you are also earning a salary. There is an income thresholds after which you will be giving Uncle Sam one dollar for every two dollars you earn. The benefits are withheld for a year if you exceed more than the allowable. SSA will eventually repay all withheld benefits, in monthly increments, once you officially retire. The best option is to delay social security income, if possible. Aside from avoiding the above scenario, when you enroll later your monthly check will be higher. The age of maximum monthly payment is seventy so there is no reason to wait longer. Check the SSA for current thresholds.
Retirement Benefits/Pension Benefits
Pension plans are less common that in years past. But should you work for an organization that provides pension benefits, it may be financially advantageous to retire at the maximum number of years of service under the plan. This is primarily because some organizations lower their overall pension benefits if they work past their defined retirement age. Other companies determine pension benefits based on a percentage of earning during the last years of service. So if you are out of work more often or have requested a reduced number of hours you can actually reduce your future pension benefits. So be sure to check your employer’s pension benefits package before making a retirement decision.
If you decide to work beyond the age of 65 you may have the option of Medicare, a company-sponsored health care plan, or a combination of both. One would think that more health care options equates to lower out of pocket medical expenses. But you could end up paying more. It is common for a health insurance company to force Medicare as the primary coverage. This could mean some medical changes that would have been covered in full by a corporate policy are either not covered or only partially covered by Medicare. And you might even have higher deductibles and co-pays. Do the math. You might be better off having only the corporate policy. You can delay enrolling in Medicare Part B without penalty for a maximum of eight months after corporate-sponsored or group health care coverage ends. Be sure you do not miss this suspense or you will have to wait until the next enrollment period (Jan 1-Mar 31 each year) which will not be active until the following Jul 1 and may also be responsible for a late enrollment penalty.
For Part D, there are a few differences. Employees can delay enrolling in Part D without penalty for up to 63 days after employer-sponsored coverage or a group plan ends. As with Part B, if you miss this window, you have to wait until the enrollment period which is Nov 15 – Dec 31 each year. Benefits being the following Jan 1. A late enrollment penalty will also apply.
If you decide to retire or are no longer able to work but are worried about your financial security, Medicaid, Medicare, and the Program of All-Inclusive Care for the Elderly (PACE) can minimize the impact of added expenses on what is likely now a fixed income.
Filling out your tax return can be very confusing. It drives me crazy every year. Laws change and the software is updated regularly. So I struggle and eventually manage to get through the process once again. But as you age, there are a number of very specific tax benefits your should take advantage. Get informed and get all the tax breaks your deserve. Click for IRS forms. The timeframe of your IRS tax refund depends on the number of returns received at any given time, the current status of tax reserve, and whether the review of your return triggers a more detailed assessment or audit of your paperwork. If your return indicates a payment is due, you can pay federal income taxes online in accordance with guidance at the IRS. If you expect money back, click here for the status of your IRS refund. Some tips that can help you are below.
Standard Deduction for Seniors – If you do not itemize your deductions, a higher standard deduction amount is available if you and/or your spouse are 65 years old or older. You can get an even higher standard deduction amount if either of you are blind. (Form 1040 and Form 1040A provide detailed instructions.) For details on the IRS tax table, go to IRS.
Taxable Amount of Social Security Benefits -When preparing your annual tax return, when you calculate the taxable amount of your Social Security it is advisable to use the worksheet found in the instructions for IRS Form 1040 and Form 1040A to ensure the correct amount is used. See Publication 915
Credit for the Elderly or Disabled – You must claim this credit using Form 1040 or Form 1040A. The credit is not available if you file using Form 1040EZ. The Credit is based on your age, filing status and income. You may be able to take the Credit if all of the below apply:
I realize how confusing this sounds. See the instructions for Schedule R (Forms 1040 or 1040A) if you want the IRS to figure this credit for you.
Significant Life Event – Many significant life events come with a related tax consequence. If you have divorced, married, lost of loved one or experienced other major life changes you should be aware of the implications on your tax return.
Scams – Tax time also means a rise in scamming. Don’t fall victim to tax scams. Remember, if it sounds too good to be true, it probably is. If you know of a tax fraud, report it to the IRS. Let me know and I will be sure to post the information!
At http://www.irs.gov/Individuals/Seniors-&-Retirees, you can find tax information, such as the below and much more, that will help in generating your tax return. Get free tax software and filing of your Federal return at the IRS (for those with an income under $58,000) or at Free Tax USA. Once you have submitted your paperwork or electronic files, you can check your federal tax return status at the IRS.
If you have experienced a death, divorce, marriage. Your taxes may have changed. So do your homework. Details available in Elder Law and General Legal Information.
Many of the expenses you face may be covered by insurance or written off on your income taxes. Read the information in this section to find out how you may benefit.
For complete details, a tax guide for senior citizens can be found at http://www.irs.gov/publications/p554/ch04.html.
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