Many investors look ahead to certain events in their lives as they plan their retirement. These are mostly age-based milestones, the times when investors make financial decisions that will affect their retirement for better or for worse.
Milestone #1: Age 55: One of the earlier milestones in retirement planning comes at age 55. That’s the age when many retirement plans, including 401(k)s and defined and government pension plans, allow withdrawals without imposing a premature tax penalty — usually 10%. This can come in handy, especially for individuals who want to retire early. That’s more than enough reason to make 55 a milestone as you plan your retirement.
Milestone #2: Age 59½: Another milestone, one of the most popular ones for retirement planning, comes when you reach 59½ years old. That’s when you can take withdrawals from IRAs or qualified money without facing a premature penalty or an extra tax from the IRS. While often overlooked, when investors reach this age, many plans allow for an in-service rollover from a 401(k) plan to an IRA even while you continue to work and contribute to the 401(k). That’s important, especially as 401(k)s are increasingly offering limited choices and options. This is a huge milestone for many investors, giving people the ability to retire if they have saved enough when reaching this age.
Milestone #3: Age 62 (Age 60 is widow): As we enter our 60s, we face additional milestones. Starting at age 62, we can begin taking early Social Security payments. Many investors use this age as their retirement date when they should be relying on other milestones instead. While many of us want to take Social Security early, there are some drawbacks. Taking Social Security early could lead to a 25% reduction in lifetime benefits. Income restrictions also come into play when you take Social Security early. These pitfalls serve as important reminders on why it’s important to rely on an experienced and knowledgeable financial adviser as you plan your retirement.
Milestone #4: Age 65: Another milestone comes at age 65, when most of us are eligible for Medicare, which is increasingly important as health care ranks as one of the top concerns and expenses for many retirees. Even if you are planning to collect Social Security later, you should file for Medicare three months before you turn 65. Many traditional defined benefit plans, usually offered through employers, set 65 as the normal retirement date, making this an important milestone for many of us as we plan our retirements.
Milestone #5: Full Retirement Age: Reaching the age to collect full Social Security is another milestone. For those born between 1943-1954, the full Social Security age is when we reach 66. Those of us born in the latter half of the 1950s reach the age to collect full Social Security between our 66th and 67th birthdays. Those of us born in 1960 or after have to wait until we are 67 to collect full Social Security. There are no income restrictions if we take Social Security when we reach that age to fully collect it and, usually, there’s a dramatic increase in income compared with starting to collect when you reach 62.
Milestone #6: Age 70: Another milestone comes when you reach 70. If you hold off until you hit 70 to start collecting Social Security, you usually see an 8% increase in your benefits for every year past your full retirement age. There’s no benefit to waiting until after 70 to start collecting Social Security.
Milestone #7: Age 72 (or 73 if you reach age 72 after December 2022): The last age-based milestone comes at 72 (or 73), which is the required minimum distribution age. This is when you are required to take an annual withdrawal from your IRA or qualified accounts whether you need the income or not. If you are still working, you are not required to take withdrawals from your current employer plan.
These are just some important things to consider and begin to answer. For greater peace of mind, now is the time to contact me to discuss your financial plan.