As you approach your mid-fifties, you might be looking forward to some of the financial perks of getting older, like senior discounts and catch-up contributions to your retirement accounts. But this decade is also a time when some valuable financial and insurance benefits begin to change, diminish, or vanish entirely. Many of these shifts happen quietly, and if you’re not paying attention, you could be caught by surprise. Knowing what to expect can help you make a plan to navigate these changes and protect your financial well-being as you head toward retirement.
Here are eight key benefits that magically disappear or are significantly altered around the time you turn 55.
1. Long-Term Disability Insurance Coverage
Long-term disability (LTD) insurance is a crucial safety net that replaces a portion of your income if you become sick or injured and cannot work. However, most group LTD policies offered through an employer have a benefit period that ends at age 65, the standard retirement age. As you get older, the duration of your potential benefits gets shorter. For example, if you become disabled at 58, your benefits may only last for seven years, whereas a 40-year-old might be covered for 25 years. The protection effectively shrinks with each passing year.
2. Life Insurance Payouts and Premiums
While your life insurance policy doesn’t disappear, its terms can change dramatically. Many employer-provided group term life insurance policies have an “age reduction” schedule. When you hit certain age milestones, such as 60 or 65, the value of your death benefit might automatically decrease by a certain percentage, often to 65% or even 50% of its original value. At the same time, if you’re looking to buy a new individual term life policy, you’ll find the premiums are significantly higher than they were just a few years earlier.
3. The Ability to Contribute to a Health Savings Account (HSA)
A Health Savings Account is a fantastic triple-tax-advantaged tool for saving for medical expenses. However, there’s a critical rule: once you enroll in Medicare (which most people do at age 65), you are no longer eligible to contribute to an HSA. Since you can sign up for Medicare a few months before your 65th birthday, your eligibility to contribute effectively ends then. This is a hard stop that many people don’t plan for, ending one of the best retirement savings vehicles available.
4. Penalty-Free 401(k) Withdrawals (The “Rule of 55”)
This is a benefit that appears, but only for a specific window. Generally, you must pay a 10% penalty on withdrawals from your 401(k) before age 59½. However, the “Rule of 55” is a special IRS exception. If you leave your job (quit, get laid off, or retire) in the year you turn 55 or later, you can take penalty-free distributions from the 401(k) associated with *that specific job*. It’s a valuable rule, but it’s important to know it only applies to the 401(k) from your most recent employer, not old 401(k)s or IRAs.
5. Favorable Long-Term Care Insurance Rates
Long-term care insurance helps cover the staggering costs of a nursing home or in-home health aide. The best time to buy this insurance is in your early 50s. Once you pass age 55, and especially into your 60s, the premiums increase dramatically. You are also more likely to have developed a health condition that could make you ineligible for coverage altogether. The window to lock in a reasonable rate on this critical insurance product begins to close rapidly in your mid-fifties.
6. Certain Tax Credits for Education
If you decide to go back to school later in life, you may find that some of the tax benefits you might have used for your children are no longer available to you in the same way. For example, the American Opportunity Tax Credit is only available for the first four years of postsecondary education. While the Lifetime Learning Credit is still available, it is less generous. Age itself isn’t the barrier, but the rules are often structured in a way that benefits traditional, younger students more.
7. Spousal Social Security Benefits (If Remarrying)
If you are divorced and were married for at least 10 years, you may be entitled to claim Social Security benefits based on your ex-spouse’s work record. However, this benefit disappears if you remarry before age 60. This can be a significant financial consideration for someone in their late fifties who is considering getting married again. A decision made at age 59 could have very different financial consequences than one made at age 61.
8. Lower Auto Insurance Premiums
For most of your adult life, your age has likely helped you get better car insurance rates, as experience is rewarded. However, this trend can start to reverse as you get into your senior years. While it doesn’t happen exactly at 55, many insurers start to gradually increase premiums for older drivers, often starting around age 65 or 70, citing increased accident risk. The era of your age being a net positive for your auto insurance rates has a definite expiration date.
Navigate Your Benefits as You Age
Turning 55 is a significant milestone that brings you to the doorstep of retirement. It’s a time to be proactive, not reactive. Some financial perks and benefits that magically disappear or change are simply a reality of our financial and insurance systems. By reviewing your disability and life insurance policies, planning your HSA and retirement account strategies, and considering your long-term care needs now, you can navigate these changes smoothly and enter your retirement years with confidence and security.
What financial or benefits-related change surprised you most as you got older?
Read more:
8 Financial Promises That Family Members Should Never Make
7 Financial Habits That Can Lead to Wealth
Latrice is a dedicated professional with a rich background in social work, complemented by an Associate Degree in the field. Her journey has been uniquely shaped by the rewarding experience of being a stay-at-home mom to her two children, aged 13 and 5. This role has not only been a testament to her commitment to family but has also provided her with invaluable life lessons and insights.
As a mother, Latrice has embraced the opportunity to educate her children on essential life skills, with a special focus on financial literacy, the nuances of life, and the importance of inner peace.