What are the financial benefits of moving into your 50s and 60s, if any? Getting older is supposed to make you wiser; can it also make you wealthier? Yes, if you plan ahead.
The Financial Benefits of Moving Into Your 50s and 60s
Aging brings certain life changes, but with them come financial benefits that may prove favorable to your net worth. If you’re getting to the point where your senior years are in sight, here are six things that could help your bottom line – and remind you that there's a cheerier side to all this.
1. Catch-Up Contributions
With hard work (and some luck), by the time you reach your 50s or 60s you will already have accumulated a sizable nest egg in your retirement accounts. If not, however, you have an opportunity to make up some lost ground through catch-up contributions. Catch-up contributions are a set dollar amount that you can add to a qualified retirement plan over the annual contribution limit.
For 2017, workers aged 50 and older can make a catch-up contribution of $6,000 to their 401(k)s. That’s on top of the regular contribution of $18,000. If you have a traditional individual retirement account (IRA) or a Roth IRA, you can contribute $5,500, plus another $1,000 in catch-up contributions. If you’re contributing to both an employer’s plan and an IRA, that’s $30,500 you can save for retirement per year if you’re maxing out your plans. (For more, see How to Make Catch-Up Contributions to Your 401(k).)
2. A Higher Standard Deduction
Filing taxes is never pleasant at any age, but it may be a bit less stressful once you turn 65. That’s when you become eligible for a higher standard deduction. If you typically don’t itemize, being able to claim this higher standard deduction means less of your adjusted gross income is subject to tax.
The amount of the deduction for which you qualify is based on your filing status. For 2017 the standard deduction for single filers is $6,350. If you’re 65 or older, you can claim an additional standard deduction of $1,550. The deduction amount increases if you’re married and file a joint return. In that scenario you’d be eligible for the regular standard deduction of $12,700 plus another $2,500 ($1,250 per spouse), for a total of $15,200.
3. Medicare Eligibility
There’s another good reason to anticipate turning 65. At this age you become eligible for Medicare coverage. Medicare is the government-sponsored program designed to help offset the costs you may incur for healthcare.
There are two basic types of coverage to choose from: original Medicare, which includes Medicare Parts A and B, or a Medicare Advantage Plan, also known as Medicare Part C. Original Medicare includes both hospital and medical insurance but not prescription drug coverage. Medicare Advantage covers the same things as original Medicare, but because these plans are offered by private insurers, they may also include coverage for prescription drugs, hearing, vision and dental services, among other things.
If you get traditional Medicare, you are also eligible for Medicare Part D (prescription drug coverage) and Medicare Supplementary Medical Insurance, also known as Medigap. Be aware that you have special access to these plans when you first sign up for Medicare (and penalties if you don't sign up for Part D at that time, unless you are covered by other insurance.) For more, see Medicare 101: Do You Need All 4 Parts? and The Employee's Guide to Medicare.
4. Social Security Benefits
Approximately 41 million retirees receive Social Security each month, and once you turn 62 you have the option of applying for benefits of your own. There’s a catch, however, as applying for your benefits prior to reaching your normal retirement age means a lower monthly payout. If, on the other hand, you can wait until age 70 to begin taking benefits, you should be able to increase them by 8%. That can be helpful if you’ve fallen short of your retirement savings goals.
5. Property Tax Exemptions
Owning a home can generate a tax break in the form of a deduction for mortgage interest, but that goes away once you’ve paid it off. There is, however, another tax benefit that you may be able to cash in on if you’re a homeowner. A number of states allow seniors to exempt a certain amount of their home’s value for property tax calculations or provide other benefits to protect against property tax increases or reduce property tax bills. If you live in a state such as New Jersey, which had a 2.29% effective property tax rate as of 2016, being able to take advantage of benefits such as these could yield some decent savings.
6. Other Senior Benefits
Don't forget to start looking out for senior discounts, such as reduced Amtrak fares and senior rates at hotels and movies. Move to the right city and you get to celebrate your 65th birthday with discounted or free public transportation. You don't have to wait until you're 65 for many of these benefits, as Senior Discounts So Soon? points out.
The Bottom Line
As you prepare to embark on the next phase of life in your 50s and beyond, it's nice to know that various birthdays come with financial presents that can make you a little richer. You just have pay attention and do your part, as much as you're able, to make them happen.