The significance and tax advantages of reaching age 65

 

March 31, 2023

In 1935, President Franklin D. Roosevelt established the U.S. Social Security system and designated age 65 as the retirement age. Since then, it’s become the typical age to quit working, kick back, and enjoy the fruits of your labor. To provide additional support to those over age 65, our government also offers tax breaks to older Americans. This article summarizes a few of the most important.

Increased Standard Deduction

The standard deduction is an amount of money that is subtracted from total income before taxes are calculated. Basically, it is money that you do not have to pay taxes on. In the tax year you reach age 65, you get an increase in the standard deduction, which results in lower taxes. The amount of the increase depends on your tax filing status.

Social Security Tax Exemption

Generally, 85% of your Social Security benefits are subject to tax. However, the percentage of your benefits that are subject to tax may be lower if your total income is lower.

  • If you are single...
    • And your total income (Social Security plus pension and any earned income) is below $25,000, none of your Social Security income is taxable.
    • And your total income is between $25,000 and $32,000, only 50% of your Social Security income is subject to tax.
  • If you are married filing jointly...
    • And your total income is less than $32,000, none of the Social Security income is taxable.
    • And your total income is between $32,000 and $44,000, only 50% of your Social Security income will be taxed.
Medical Expense Deduction

This is available to all taxpayers but those over 65 are more likely to take advantage of the ability to deduct medical expenses that exceed 7.5% of your adjusted gross income (AGI). Basic health maintenance expenses, such as vitamins, food supplements, and gym memberships are not deductible. However, the following are:

  • Prescription drug costs
  • Mental health expenses, such as the cost of therapy
  • The costs of glasses, dentures, or orthodontic appliances
  • Expenses incurred due to medical needs, such as parking fees paid at the doctor’s office
  • Health insurance premiums
  • The costs of senior care, such as in-home help or adult day service

While not exclusive to seniors, the rules related to income and expenses from a hobby may become more pertinent in retirement. Certain deductions are available to help reduce income generated from such pursuits. Other tax breaks, such as Elderly or Disabled Tax Credits, are only offered to senior citizens. Although rules and benefits vary widely, some states provide income tax deductions and income exclusions to seniors of varying ages.

The rules change frequently and some of these deductions can be complex to calculate. Please consult with your advisor or tax professional to help ensure you are taking advantage of all the deductions and credits available to you. 


The Mather Group, LLC (TMG) is registered under the Investment Advisers Act of 1940 as a Registered Investment Adviser with the Securities and Exchange Commission (SEC). Registration as an investment adviser does not imply a certain level of skill or training. For a detailed discussion of TMG and its investment advisory services and fees, see the firm’s Form ADV on file with the SEC at www.adviserinfo.sec.gov, or on the firm’s website at www.themathergroup.com. The opinions expressed, and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. The opinions and advice expressed in this communication are based on TMG’s research and professional experience and are expressed as of the publishing date of this communication. TMG makes no warranty or representation, express or implied, nor does TMG accept any liability, with respect to the information and data set forth herein. TMG specifically disclaims any duty to update any of the information and data contained in this communication. The information and data in this communication does not constitute legal, investment, or other professional advice.

The Mather Group

HOW SMART INVESTORS RETIRE™

Get in touch with us or find one of our office locations   Contact us