What Happens to Your Retirement Plan When Your Spouse Turns 65 -- Spoiler: Major Shifts
When your spouse turns 65, they become eligible for — and may be forced to take — Medicare coverage. That opens a string of implications for both them and you.
You also get closer to full spousal benefits from Social Security. Here’s exactly what changes, and how to navigate the complex benefit decisions.
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Medicare Enrollment Implications
Upon turning 65, your spouse must enroll in Medicare unless they have employer group coverage with 20 or more fellow employees.
“If your spouse works for a small employer with 20 or fewer employees, Medicare becomes primary at 65, and delaying enrollment can create coverage gaps or penalties down the road,” explains Danielle Roberts of Boomer Benefits.
That Initial Enrollment Period starts three months before the month you turn 65, and extends three months after that month, for a total window of seven months. Your spouse may have to switch to Medicare, even if they prefer their workplace coverage.
If you get your own coverage through your spouse and they switch to Medicare, that could leave you without coverage. You may need to buy your own coverage through the ACA marketplace or COBRA to bridge the gap before you turn 65 yourself.
As a final thought, beware that your spouse will pay Medicare premiums based on your combined household income from two years ago. Above certain income thresholds outlined by the Social Security Administration, you’ll pay more for Part B and Part D coverage based on the Income-Related Monthly Adjustment Amount (IRMAA).
Medigap Enrollment
Patients who want additional coverage have a choice between Medicare Advantage and Medigap supplemental policies. If your spouse opts for a Medigap policy, they have a narrow window to enroll.
“When your spouse first enrolls in Medicare Part B at 65, they get a one-time, six-month Medigap open enrollment period where no insurer can deny them or charge more based on health history,” notes Peter Abilla of Resting Sycamore Advisors. “Make the Medigap-versus-MA decision carefully at 65, because it's one of the few Medicare decisions that's hard to undo.”
Loss of HSA Eligibility
Once a spouse goes on Medicare, they can’t contribute to a health savings account (HSA).
If you and your spouse previously had a high-deductible healthcare plan (HDHP) and contributed to an HSA, you may contribute individually if you stay on the HDHP. But the contribution limit drops from $8,750 for a family to $4,400 for an individual.
Your spouse can of course still withdraw from their HSA for qualified medical expenses, even after they can no longer contribute.
Social Security Benefits
At age 65, your spouse can take Social Security benefits at roughly 86.7% of their full retirement benefit. They must wait until age 67 to reach full retirement age and collect the full benefit. See the benefit chart from the Social Security Administration (SSA) for a breakdown.
Taking Social Security benefits early can also subject your spouse to the earnings test, and the SSA can withhold benefits if they continue earning active income.
You yourself can take spousal benefits when your partner is 65, but they too will be reduced. Instead of the maximum 50% of your spouse’s benefit, expect 40 to 45%. Run the exact numbers on the SSA’s spousal benefit calculator.
Tax Implications
If your spouse starts taking Social Security benefits, Uncle Sam will likely tax some of them.
Married couples filing jointly start paying income taxes on benefits if their combined income exceeds $32,000. They can pay income taxes on up to 85% of their benefits, according to the SSA.
As nice as Social Security and Medicare benefits are for retirees, they’re also complicated. Consider speaking with a benefit advisor to help you navigate the nuances and red tape — and get the maximum possible government benefits.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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