Tips for Baby Boomers Reaching Retirement Age in 2012

Many of the rules for claiming Social Security change when you hit age 66.

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In 2012, the oldest baby boomers will turn 66, an important age for Social Security eligibility. At 66, boomers can claim the full amount of Social Security they have earned, and the penalty for working and claiming Social Security benefits at the same time disappears. Here are some retirement planning tips for those turning 66 next year.

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Social Security eligibility. Baby boomers born in 1946 will hit what the Social Security Administration considers the full retirement age, at which time they are eligible to claim the full amount of Social Security they are entitled to. Boomers who claimed their due early are receiving a reduced payout.

Delay and get more. You can further increase your monthly Social Security payments if you delay claiming your benefits up to age 70. "Financially speaking, it makes more sense to wait until later when you can get more money per year, especially if you are healthy and think you will live a long time," says Daniel Goldie, president of Dan Goldie Financial Services in Menlo Park, Calif., and coauthor of The Investment Answer: Learn to Manage Your Money & Protect Your Financial Future. "You will get more money per month and that money will continue at that higher level for the rest of your life."

Claim twice. Married individuals (or those who were married for at least 10 years) are eligible for Social Security payments based on their own work record or payments equal to up to 50 percent of the higher earner's benefit, whichever is higher. Baby boomers who have reached their full retirement age can even claim both of these types of payments at different times. A 66-year-old retiree may sign up to receive spousal payments and continue to delay receiving his or her own retirement benefit. A retired worker who uses this strategy between ages 66 and 70 will get higher monthly payments after age 70 due to delayed claiming plus four years of spousal payments.

Work without penalty. If you work and claim Social Security payments at the same time prior to age 66, part or all of your Social Security benefit will be temporarily withheld. Social Security recipients under age 66 who earn more than $14,640 in 2012 will have 50 cents of each dollar above that limit deducted from their Social Security payments. The year you turn 66, the earnings limit jumps to $38,880 and the amount withheld is reduced to 33 cents for each dollar earned. And the earnings limit disappears once you turn age 66. "Unlike people who take early Social Security, you can work and earn as much as you want without reducing your Social Security," says Tim Maurer, vice president at the Financial Consulate in Hunt Valley, Md., and coauthor of The Ultimate Financial Plan: Balancing Your Money and Life.

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Don't forget about Medicare. Boomers born in 1946 should have signed up for Medicare in 2011. Retirees can sign up for Medicare beginning three months before the month they turn 65. It's important to sign up for Medicare as soon as you are eligible because premiums may increase by 10 percent for each 12-month period that you delay enrollment. People who are still working and are covered by a group health insurance plan through their job must sign up within eight months of leaving the job to avoid the penalty. If you elect to receive Medicare Part D prescription drug coverage, it's important to shop around for a new policy annually during the open enrollment period because covered medications and cost-sharing requirements often change each year.

Protect what you have. At this stage of your life, it is important to protect the nest egg you have built for retirement. "Make sure you are continuously tracking and monitoring how you are spending your money and the types of returns you are generating from your portfolio," says Gordon Tudor, a certified financial planner for Wealth Analytics in San Diego, Calif. "It's not about return—it's about reducing your risk and avoiding losing money." While many retirees maintain some exposure to stocks, which provide continued growth and fight inflation, it's important to keep a gradually increasing portion of your nest egg in safer investments that will allow you to meet your everyday spending needs.