Personal Finance
Turning 65? What to know when planning for Medicare, Social Security
A “silver tsunami” — with a record number of Americans expected to turn age 65 — is here.
Americans who reach that milestone age face high-stakes financial decisions.
Two of the most important choices retirees face — which Medicare health insurance coverage option to choose and when to claim Social Security benefits — come with deadlines.
And making a less-than-ideal selection may cost a retiree over their lifetime.
More than 11,200 baby boomers are expected to turn 65 every day from now through 2027, a phase that has been dubbed “peak 65.”
For many reasons, the generation entering this new life phase doesn’t have it easy.
A so-called three-legged stool of retirement planning — employer pensions, personal savings and Social Security — has largely gone by the wayside as many private-sector employees no longer have traditional pensions that may provide income throughout retirement, according to recent research from the Alliance for Lifetime Income.
Meanwhile, about 40% of households will not be able to maintain their pre-retirement standard of living due to insufficient retirement income, according to the Center for Retirement Research at Boston College.
Choosing Medicare coverage comes with trade-offs
Turning 65 ushers in a key milestone — eligibility for Medicare coverage.
Ideally, beneficiaries should sign up for all parts of Medicare the month before that birthday to avoid coverage gaps, according to a recent retirement report by J.P. Morgan Asset Management.
That coverage may come in the form of “original” Medicare — through Parts A and B, for hospital and medical insurance, as well as optional additional coverage through Part D drug coverage or medigap private insurance plans.
Alternatively, retirees may opt for private Medicare Advantage plans that may include prescription drug coverage and possibly also vision, dental and hearing.
Beneficiaries may revisit their coverage each year during open enrollment periods.
“It can be very confusing for people to sort through all of their options and try to figure out what the differences are across plans, but also what options will work for them over the next year and work well over the longer term as well,” said Gretchen Jacobson, vice president of Medicare at the Commonwealth Fund.
Today’s beneficiaries need to brace themselves for rising health-care costs.
A beneficiary who is 65 in 2024 and covered by original Medicare faces $542 in monthly costs on average, according to J.P. Morgan’s research. By 2054, when that beneficiary is 95, that may go up to $1,484 per month, J.P. Morgan said.
That’s based on an annual 6% health care inflation rate, which J.P. Morgan calls a “prudent” assumption.
In comparison, inflation is up 2.8% annually, based on the latest read of the Federal Reserve’s key inflation gauge, the personal consumption expenditures price index.
The monthly outlay for beneficiaries covered by Medicare Advantage is much lower, according to J.P. Morgan’s estimates. Someone turning 65 in 2024 may spend up to $427 per month for Medicare Advantage premiums and out-of-pocket costs. By 2054, when they are 95, that may climb to up to $990.
Based on the numbers, Medicare Advantage may seem like a better deal. But experts say there are trade-offs to consider.
New enrollees who opt for Medicare Advantage may later want to switch to original Medicare. But it may be difficult getting medigap coverage, depending on the state you’re in and your health status, said Sharon Carson, retirement insights strategist at J.P. Morgan Asset Management.
Having original Medicare also gives you more providers to choose from, as all providers who accept Medicare generally take original Medicare, Carson said. Consequently, retirees who split their time between two states tend to opt for original Medicare.
Because Medicare Advantage enrollees have no supplemental coverage, they should set aside more money for surprise out-of-pocket costs, Carson said.
Moreover, while retirees may opt for Medicare Advantage for the additional coverage those plans may provide, many people don’t actually use benefits such as dental, vision, fitness or over-the-counter medication coverage, recent research by the Commonwealth Fund found.
“They should also consider whether they will actually use those benefits, or if perhaps there’s a different plan that offers benefits they’re more likely to use,” Jacobson said.
Claiming Social Security early means taking a 30% cut
Americans who turn age 65 in 2024 have a Social Security full retirement age of 66 and 10 months.
For those who reach that age next year and thereafter, the full retirement age is 67, per changes enacted decades ago that are being gradually phased in.
The full retirement age is the point when retirees stand to receive 100% of the benefits they’ve earned.
But they may claim as early as age 62, though if they do so they will receive reduced benefits.
For those turning 65 now, that amounts to a benefit cut of around 30%. So if their full retirement age benefit is $1,000 a month, they will receive a $700 monthly check for life if they instead decide to claim at age 62.
Beneficiaries who delay even longer — up to age 70 — stand to receive a benefit increase of 8% per year for every year they delay claiming past full retirement age.
“The best financial asset you can have is a higher Social Security annuity,” said Teresa Ghilarducci, a labor economist and retirement security expert.
“It’s inflation indexed and guaranteed for life,” she said.
Yet only about 8% of beneficiaries wait until age 70 to claim, according to Ghilarducci, a professor at The New School for Social Research and author of the book “Work, Retire, Repeat: The Uncertainty of Retirement in the New Economy.”
“Everyone should know that you have a penalty if you collect before 70,” Ghilarducci said.
However, most people do not delay benefits that long simply because they can’t, she said.
They may be forced out of work early and need to dip into Social Security to supplement their income when retirement savings fall short. Or they may be working but have taken a job that pays a lot less and make up for those missing wages with their Social Security checks.
Those who can’t delay their Social Security benefits for years can still increase their lifetime benefit income by delaying for just a few months, Ghilarducci said.
“Do whatever you can to bridge to a higher Social Security benefit amount,” Ghilarducci said.
A customer visits Macy’s Herald Square store in New York City during early morning Black Friday sales, Nov. 24, 2023.
Kena Betancur | Getty Images
Typically, the five days beginning Thanksgiving Day and ending Cyber Monday are some of the busiest shopping days of the year.
This year, the number of people shopping in stores and online during that period could hit a new record, according to the National Retail Federation’s annual survey.
But consumers trying to make the most of the Black Friday sales may not be getting the best prices of the season.
According to WalletHub’s 2023 Best Things to Buy on Black Friday report, 35% of items at major retailers offered no savings compared with their pre-Black Friday prices. The site compared Black Friday advertisements against prices on Amazon earlier that fall.
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“Some Black Friday deals are misleading as retailers may inflate original prices to make a deal look like a better value,” said consumer savings expert Andrea Woroch.
This year, in particular, some of the deals are already as good as they are going to get.
“Those holidays have gotten a little watered down because retailers want to maximize the selling days,” said Adam Davis, managing director at Wells Fargo Retail Finance.
“Compounding the importance of stretching the holiday season, retailers are facing a shorter selling season between Thanksgiving and Christmas — almost a week shorter in 2024,” he said. “That will force the retailer’s hand to be pretty promotional in November.”
Concerns about shipping
There’s another good reason to shop early.
Consumers are increasingly concerned that their online orders may not arrive in time for the holiday — and rightfully so.
DHL Supply Chain’s new CEO for North America, Patrick Kelleher, recently told CNBC that items may arrive later than in years past, especially those ordered around big dates such as Black Friday and Cyber Monday.
In a period of such high volume, third-party shippers are particularly strained, according to Lauren Beitelspacher, a professor of marketing at Babson College. An ongoing labor shortage also means that some companies simply cannot hire enough workers to sort, transport and deliver packages on time.
“We are very spoiled; we got to the point where we think of something we want and it magically appears,” Beitelspacher said. But at the same time, “we’ve learned how fragile the supply chain is.”
When there are more packages to ship, shipping times increase, which can also boost the chance they may get damaged, lost or stolen en route — not to mention the risk of “porch piracy” once an item is delivered.
What discounts to expect on Black Friday
“You are easily going to see 20% to 30% off,” Davis said — but “not necessarily storewide.”
Depending on the retailer, some markdowns could be up to 50%, according to Beitelspacher. However, premium brands — including high-end activewear companies such as Nike, Alo or Lululemon — likely will not discount more than 20% or 30%, she said. “It’s a fine balance with maintaining the premium brand integrity and offering promotions.”
As in previous years, these companies are aware of how price sensitive consumers have become.
“The holidays are a time people want to treat themselves, but they also want to make their dollar last longer,” Beitelspacher said.
To that end, retailers will also try to lure shoppers to spend with incentives, such as a free gift card with a minimum purchase, Woroch said. “Many stores will also offer bonus rewards when you spend a certain amount on Black Friday.”
What not to buy on Black Friday
Typically, Black Friday is a great time to find rock-bottom prices on fall clothing — including flannels, denim, coats and accessories — as well as televisions and consumer electronics.
But hold off on beauty and footwear, which are typically better buys on Cyber Monday, Woroch said.
For those planning a trip, “Travel Tuesday” is a good time to snag discounts on airfares, cruises and tour packages, with many hotels offering 20% to 30% off best available rates. Travelers can check out Travel Tuesday deals from 2023 to get an idea of what to expect this year.
With toys, it could pay to hold out until the last two weeks of December, and holiday decorations are cheaper the last few days before Christmas or right after, according to Woroch.
Exercise equipment, linens and bedding tend to be marked down more during January’s “white sales,” she said, and furniture and mattress deals are often better over other holiday weekends throughout the year, such as Presidents’ Day, Memorial Day and Labor Day weekends.
How to get even lower prices
Woroch recommends using a price-tracking browser extension such as Honey or Camelizer to keep an eye on price changes and alert you when a price drops. Honey will also scan for applicable coupon codes.
If you are shopping in person, try the ShopSavvy app for price comparisons. If an item costs less at another store or popular site, often the retailer will match the price, Woroch said.
Further, stack discounts: Combining credit card rewards with coupon codes and a cash-back site such as CouponCabin.com will earn money back on those purchases. Then, take pictures of your receipts using the Fetch app and get points that can be redeemed for gift cards at retailers such as Walmart, Target and Amazon.
Finally, pay attention to price adjustment policies. “If an item you buy over Black Friday goes on sale for less shortly after, you may be able to request a price adjustment,” Woroch said. Some retailers such as Target have season-long policies that may apply to purchases made up until Dec. 25.
Izusek | E+ | Getty Images
Despite a strong year for the stock market, you could still be sitting on portfolio losses. But you can leverage down assets to score a tax break, experts say.
The tactic, known as “tax-loss harvesting,” involves selling losing brokerage account assets to claim a loss. When you file your taxes, you can use those losses to offset portfolio gains. Once your investment losses exceed profits, you can use the excess to reduce regular income by up to $3,000 per year.
“Tax-loss harvesting is a tried and true strategy to lower investors’ tax bills,” said certified financial planner David Flores Wilson, managing partner at Sincerus Advisory in New York.
After offsetting $3,000 in regular income, investors can carry any additional losses forward into future years to offset capital gains or income.
“Investors can benefit substantially over time” by tax-loss harvesting consistently throughout the year, Wilson said.
What to know about the wash sale rule
Tax-loss harvesting can be simple when you’re eager to offload a losing asset. But it’s tricky when you still want exposure to that asset.
That’s because of guidelines from the IRS known as the “wash sale rule,” which blocks you from claiming the tax break on losses if you rebuy a “substantially identical” asset within the 30-day window before or after the sale.
In other words, you can’t sell a losing asset to claim a loss and then immediately repurchase the same investment.
How exchange-traded funds can help
While the wash sale rule is a challenge, exchange-traded funds, or ETFs, can help investors avoid trouble with the IRS, experts say.
“The beauty of using ETFs for doing tax-loss harvesting … is that there are so many similar, but not identical, ETFs that could be exchanged for a losing one,” said George Gagliardi, a CFP and founder of Coromandel Wealth Strategies in Lexington, Massachusetts.
For example, many ETFs in the same sector, such as large-cap value, emerging market or small-cap growth, use the same pool of stocks with different selection criteria, he said.
But ETFs with identical indexes, like the S&P 500, “will run afoul of the wash sale rule” and the loss won’t be allowed, Gagliardi said.
Ultimately, the IRS definition of “substantially identical” isn’t black and white and “depends on the facts and circumstances” of your case, according to the agency.
When in doubt, consider reviewing your plan with an advisor or tax professional to make sure you’re safe from violating the wash sale rule.
Voters line up to cast their ballots at a voting location in Bethlehem, Pennsylvania, on Nov. 5, 2024.
Samuel Corum | Afp | Getty Images
When asked, “Are you better off today than you were four years ago?” the answer for many older voters ages 50 and over was “no,” according to a new post-election poll released by the AARP.
Almost half — 47% — of voters ages 50 and over said they are “worse off now,” the research found, while more than half — 55% — of swing voters in that age cohort said the same.
In competitive Congressional districts, President-elect Donald Trump won the 50 and over vote by two percentage points — the same margin by which he carried the country, AARP found.
Among voters 50 to 64, Trump won by seven points. With voters ages 65 and over, Vice President Kamala Harris won by two points.
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The AARP commissioned Fabrizio Ward and Impact Research, a bipartisan team of Republican and Democrat firms providing public opinion research and consulting, to conduct the survey. Interviews were conducted with 2,348 “likely voters” in targeted congressional districts following Election Day between Nov. 6 and 10.
Older voters, who make up an outsized share of the vote and tend to lean Republican, made a difference in a lot of key congressional races, according to Bob Ward, a Republican pollster and partner at Fabrizio Ward.
“Overall, 50-plus voters really are what delivered Republicans their majority,” Ward said.
Older swing voters focused on pocketbook issues
When asked “How worried are you about your personal financial situation?” in a June AARP survey, 62% of voters ages 50 and over checked the worry box, while 63% of voters overall did the same.
Voters continued to place an emphasis on their money concerns on Election Day, the latest AARP poll found.
“All these surveys that we conducted for AARP spoke to a lack of economic security for people,” said Jeff Liszt, partner at Impact Research.
“The shock of inflation had left them without a feeling of security,” he said.
For voters ages 50 and over, food ranked as the top cost concern, with 39%, the poll found. That was followed by health care and prescription drugs, with 20%; housing, 14%; gasoline, 10%; and electricity, 6%.
More than half — 55% — of voters ages 50 and up said they prioritized personal economic issues, including inflation, the economy and jobs, and Social Security when determining their vote.
Older swing voters were more likely to turn out at the polls due to those pocketbook issues than any other priorities, the poll found.
Republicans won older voters on most personal economic issues, though voters ages 50 and up still favored Democrats on Social Security by two points.
Democrats have traditionally had a stronger lead on Social Security, Ward said, while the poll results show it is now “completely up for grabs.”
“Looking at the midterms, whether I’m Republican or Democrat … this is going to be an issue I want to win on,” Ward said.
Voters 50 and over broadly support Medicare negotiating prescription drug prices, as well as policies to help the older population age at home. Non-financial issues such as immigration and border security and threats to democracy were also among top concerns for some older voters.
Social Security reform may be bigger focus
While both presidential candidates promised to protect Social Security on the campaign trail, they did not provide plans to restore the program’s solvency.
The trust fund Social Security relies on to pay benefits is projected to run dry in 2033, at which point 79% of those benefits will be payable.
“What’s absolutely clear is that there’s an action-forcing event that we’re getting closer to, and that at some point Congress is going to have to act,” said Nancy Altman, president of Social Security Works, an advocacy group focused on expanding the program.
While Trump has touted plans to eliminate taxes on Social Security benefits, research has found that would worsen the program’s insolvency. The House voted this week to eliminate rules that reduce Social Security benefits for certain people who have pension income, which would also add to the program’s costs.
For most Americans, Social Security is the primary source of retirement income, according to the AARP. About 42% of people ages 65 and over rely on the program for at least 50% of their incomes; about 20% rely on it for at least 90% of their incomes.
Like Social Security, Medicare also faces a looming trust fund depletion for the Part A program that covers hospital insurance.
“We want to ensure that we’re protecting Medicare, Social Security and that it’s done in a fiscally responsible way,” AARP CEO Dr. Myechia Minter-Jordan told CNBC in a recent interview.
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