The saying goes: “The days go slow, but the years go fast.” Throughout our lives, there are various ages we look forward to. These may include Confirmations, Bar/Bat Mitzvahs, getting one’s driver’s license, and turning 21. People sometimes joke that once you turn 25 (the age when you typically receive a discount on your auto insurance), there is nothing left to look forward to. As a financial advisor, I beg to differ. There are plenty of milestone ages that occur in our adult years, particularly as we approach retirement. They may not be as exciting as turning 21, but they are significant enough that one should pay attention when thinking about retirement planning.
Here are some pre-retirement and retirement planning milestones to be aware of, by the numbers.
Age 50: Catch-up contributions on most retirement plans
Starting at age 50, contributions to retirement plans such as a 401(k), 403(b), 457, and IRAs, increases by an additional $6,500 ($26,000 in total with the catch-up provision). For IRA and Roth IRAs, the increase is $1,000 ($7,000 in total with the catch-up provision). These numbers are for the years 2020 and 2021 only.
Age 55: Separation of Service for company retirement plans
If you separate from service in the year you turn 55 or older, you can take distributions from your company retirement plan (i.e., 401(k) and 403(b)) and avoid the 10% penalty for early distribution.
Age 59 ½: Retirement plan and IRA distributions without penalty
At age 59 ½, you become eligible to withdraw money from your retirement accounts (i.e., 401(k), 403(b), and IRA) penalty-free.
Age 62: Earliest age you can begin receiving Social Security benefits
At age 62, you can begin taking social security benefits, assuming you have earned enough credits. Be careful, however, because there are rules to be aware of. For example, if you start collecting early, you will receive a lower benefit amount. If you are still working, you will probably need to give some or all of it back.
To estimate your social security benefits at different ages and dates, visit the Social Security website and sign in or set up an account for secure access to information based on your earnings history and interactive tools tailored to you.
Age 65: When to Apply for Medicare
Congratulations! Medicare now becomes your primary insurance (in most cases). You will need to learn what each of the components ─ Part A, Part B, Part D, and Medigap ─ offer.
Age 65-67: Receive full Social Security benefits at your full retirement age
Depending on your year of birth, you are now eligible to receive full social security benefits. At this time, even if you’re working, you get to keep it all. The full retirement age is 66 if you were born between 1943 to 1954. The full retirement age increases gradually if you were born between 1955 and 1960, until it reaches 67. For anyone born 1960 or later, full retirement benefits are payable at age 67.
Age 70: Receive maximum Social Security benefits
You must start collecting social security at age 70. The advantage of waiting is that you receive an 8% increase for every year you wait past your full retirement age, as described above. You will also receive cost of living increases for every year you wait. In 2021, the Social Security cost of living increase is 1.3%.
Age 72: Required Minimum Distributions from retirement plans and IRAs
Before the SECURE Act, passed on December 20, 2019, you were required to take required minimum distributions (RMDs) at the age of 70 ½. Beginning on January 1, 2020, anyone who had not yet turned age 70 ½ as of December 31, 2019, received an extension. Now, the age at which you have to start taking RMDs is age 72. The one exception to this is the Roth IRA. You are not required to take an RMD from your Roth IRA.
Read more about how required minimum distribution rules have changed.
If you need help calculating how much money you need to withdraw each year, feel free to contact an Access Wealth advisor.
Most of these milestones occur during one’s pre-retirement and retirement years. The numbers are important, and you should speak with a financial planner to ensure you are maximizing all your benefits and minimizing your tax liability.
Here’s a useful retirement savings calculator to help determine when your retirement savings account may be depleted given a specified monthly income target.
As you get closer to retirement, there are additional things to think about. Avoid these mistakes when planning for retirement, and learn why you should not enter retirement without a budget. Feel free to contact an Access Wealth advisor if you have specific questions about your retirement planning or how to handle any of the milestone ages above.