Retirement planning is a complicated step-by-step process that takes place over decades. But the most crucial years for retirement planning start in a person’s early 50’s and end in their early 70’s. During this period of just over twenty years there are eight different retirement planning “inflection point” ages when new options become available, new decisions need to be made, and many times actions must be taken quickly to ensure the best possible retirement.
These eight inflection point ages in retirement planning are:
At age 50, you can start to take advantage of “catch-up contributions” – the ability to contribute a little extra to your 401k or IRA accounts each year.
For 2019, savers 50 or older can save an extra $6,000 catch up contribution in their 401k’s in addition to the yearly maximum 401k contribution of $19,000, allowing them to put away up to $25,000.
People who use IRA’s to save for retirement can also take advantage of a catch up contribution of $1,000 in addition to the $6,000 annual limit, for a total contribution for $7,000.
If you are age 55 or older, and “separated from service” from your employer (were laid off, fired, quit, or retired) you can begin taking withdrawals from your 401k or 403b plan without incurring the early withdrawal penalty of 10%.
This rule only applies to your current employer’s 401k or 403b – the one you left or will be leaving after age 55. If you still have money in a former employer’s 401k or 403b, this rule does not apply and you have to wait until age 59 ½ to withdraw the money without incurring the 10% penalty.
For this reason, those who plan on retiring early (before 59 ½) may want to roll over an old employer retirement plan to their current one to take advantage of this treatment.
Age 59 ½
At age 59 ½ you can withdraw from retirement accounts – 401k’s, 403b’s, IRA’s without incurring the 10% early withdrawal penalty. That doesn’t mean you have to start withdrawing or should begin withdrawing, just that you can without an extra penalty.
Age 62 is the earliest age you can begin collecting Social Security benefits. But it is important to remember, by claiming early, you receive a reduced benefit forever, and by as much as 30%.
In spite of the reduction in benefits for claiming early, people often still want to claim early to “get their benefits now while they can” even though they know that may not be the best move financially. If this sounds like you, I’d highly recommend you read my brother David’s blog about the complicated psychology of Social Security.
You can enroll in Medicare during the 7-month period that begins 3 months before the month you turn age 65, and ends 3 months after the month of your 65th birthday.
If you are currently receiving Social Security you will be automatically enrolled in parts A and B which become effective the month you turn 65. If you are not already receiving Social Security by the time you reach age 65, you need to enroll in Medicare Parts A and B yourself. If you are interested in Part D, you must enroll in that yourself either way.
Make sure you get this right – if you don’t sign up on time your premiums rise permanently. Read Ryan’s blog about avoiding Medicare penalties.
Age 66 - 67
If you were born between 1943 and 1954, you will reach “full retirement age” – the age at which you receive your full Social Security benefits – at age 66.
If you were born after 1954 and before 1960, you will qualify for your full Social Security benefit between age 66 and 67 (see table below).
Workers born in 1960 and later will qualify for their full benefit at age 67.
At age 70, you stop receiving increases in benefits for waiting to take Social Security.
For this reason, this is the very longest you should wait to claim Social Security, and make sure you claim immediately, as you do not want to miss out on benefits that will not be made up.
The government does not want you keeping your money in tax-advantaged accounts indefinitely, so when you reach age 70 ½ the government requires you take a certain amount of money out of your tax-deferred retirement accounts, called a Required Minimum Distribution. If you don’t, they hit you with a penalty of 50% of the amount not taken on time.
Your first RMD is must be taken by April 1 the year after you turn 70 ½. After that, the deadline for taking Required Minimum Distributions or “RMDs” is December 31 each year.
For Roth IRA’s there are no RMDs if you are the original owner, as you paid the taxes “up-front” and they will receive no revenue when you sell your investments and withdraw funds from the account.
Plan Ahead and Get Help if You Need It
It is important to be aware of all the important retirement planning inflection points and have a plan for how you are going to handle them in advance, instead of trying to scramble to make decisions and take action at the last minute.
If keeping track of all that sounds too overwhelming or if you have any specific questions about the choices you have as you reach one of these milestone ages, feel free to schedule a time to talk to one of our retirement planners today. We are always happy to help!
Paul R. Ruedi, CFP® is a financial advisor at Ruedi Wealth Management in Plano, Texas.
Paul has been quoted in news publications including USA Today, Forbes, The New York Times, Dallas Morning News, Inc.com, Business Insider, US News and World Report, GoBankingRates, The Street, NerdWallet, and The Penny Hoarder. He also writes articles that have been featured in CNBC, Investopedia, Yahoo Finance, Nasdaq, and MSN Money.
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