When individuals retire expecting their savings to last the rest of their lifetime, they are often surprised by the overwhelming effect that taxes can have on their resources. Being aware of your timing and penalties if you don’t act on time is critical for a healthy and wealthy retirement.
Claiming Your Social Security Benefits Early
What age did you begin collecting your Social Security benefits? Your answer to this question could have a large impact on on the amount of money and benefits you will receive.
Social Security’s full-benefit retirement age is increasing gradually because of legislation that was passed by Congress in 1983. Historically, the full benefit age was 65, and retirement benefits were first available at age 62. Currently, the benefit age is as follows: 66 for people born in 1943-1954, gradually climbs toward 67 if you were born between 1955 and 1959, and 67 if were born in 1960 or later.
Benefits are still available at age 62, but they will be reduced at a greater percentage.
Failing to Enroll in Medicare on Time
If you worked at least 10 years (or 40 quarters) in the United States, you should automatically be enrolled in Medicare Part A. Your card should reflect your Medicare Part A start date as the 1st of the month in which you turn 65. If you were born on the first of the month, the start date will be the first of the month prior to your birthday.
If you aren’t receiving your Social Security benefits, you’ll be responsible for enrolling in Part A on your own. Your Initial Enrollment Period is the best time to sign up – which starts 3 months before the month you turn 65 and ends three months after. It’s wise to sign up as early as you can so that you can start receiving your coverage right away.
In most cases, if you don’t sign up for your Medicare Part B when you’re first eligible, you’ll be required to pay a late enrollment penalty. You’ll be responsible for paying this penalty for the duration that you have Part B. Here’s how the Part B penalty works: Your monthly premium for Part B may go up 10% for each 12-month period that you could have had Part B, but didn’t.
Failing to Withdraw Your Required Minimum Distributions (RMDs) from your IRA
By law, once you turn 70 1/2, you are required to begin taking a minimum amount out of your traditional IRA every year. In most cases, the deadline for taking your annual Required Minimum Distribution (RMD) is December 31.
The only exception to this deadline is for first-timers. The deadline for the first year you make your RMD is April 1 of the year after you turn 70 1/2.
Whether the IRA is your own or inherited, if you don’t withdraw your required distribution by the deadline, you will face a penalty amouting to 50% of the amount you failed to withdraw. If you were supposed to withdraw a minimum of $5,000 and failed to do so, you will be penalized $2,500.
If you do miss the deadline, don’t wait for the IRS to contact you. If you contact them first, you have a much better chance at escaping the 50% penalty, as the IRS is fairly flexible on this.
Understanding your deadlines and responsibilities in retirement is crucial to avoid government penalties. For more information regarding your deadlines for Social Security or Medicare enrollment, please call us at (866) 894-3258, and one of our agents will be happy to educate you and walk you through this process. Or, to view your Medicare supplement quote, please fill out the following form: Compare Medicare Supplement Quotes