Reaching “official” retirement age marks a rite of passage in your professional life. But there are many key milestones along this journey.
Here are the key financial milestones you should know about to make the most of the funds you’ve worked so hard to build.
Age 50: A Chance to Save a Little More for Retirement
Not sure you’ve saved enough to safely consider retiring in the near future? Once you turn 50, you may be eligible to take advantage of additional “catch up” contributions to an individual retirement account (IRA) for a total annual contribution of up to $6,500, depending on your adjusted gross income (AGI) and tax filing status.
If you have a workplace sponsored retirement plan like a 401(k) or 403(b), you may also make up to $6,000 in additional catch up contributions, on top of the maximum $18,000 annual limit on elective deferrals.
Age 55: Eligibility for Penalty-Free Distributions from a Former Employer’s Account
If you permanently leave a job (for any reason) once you’re 55, you may be eligible to access funds you have in that employer’s 401(k) or 403(b) plan, without paying a 10% early withdrawal penalty. But, remember: the funds you withdraw could be considered taxable income. And funds from an employer-sponsored plan that you rolled over into an IRA would not be eligible.
Age 59 ½: You Can Access Retirement Funds—But Should You?
You’re no longer subject to a 10% early withdrawal penalty if you access retirement funds held in a workplace retirement plan, or an IRA once you’re officially 59 1/2 years old. But with the exception of nondeductible contributions you may have made to the account(s), funds withdrawn could still count as taxable income. Because of the potential tax consequences, patience may pay off. For example, if you keep retirement funds in a ROTH account for more than five years, withdrawals become tax-free.
Age 62: Consider Maximizing Social Security Benefits
You become eligible to claim social security benefits when you’re 62 years old (even if you’re still employed) but is this a good idea? According to the Social Security Administration website, you risk reducing the total amount of your benefit potential by as much as 30% if you don’t wait to collect until you’ve reached full retirement age (66 or 67, depending on the year you were born). Based on your earned income, up to 85% of your social security benefits could be considered taxable income at the Federal and state level.
Three Months Before You Turn 65: Leverage Your Healthcare Benefits
A healthy 65-year-old couple with annual income between $214,000 and $267,000 can reasonably expect to spend about $565,000 on healthcare-related costs through retirement, including Medicare premiums and supplemental coverage. You may be eligible to partially offset those expenses by enrolling in Medicare three months before you turn 65. You remain eligible to enroll for up to three months after your 65th birthday but if you miss that window, you’ll have to wait until the next general enrollment period. Keep in mind: missing your initial enrollment period could also cause your Part B premium to increase by 10%.
Ages 66-67: You’re Officially Retirement Age
You can claim your social security benefits once you reach full retirement age and receive your full benefit amount, even if you’re still working—but up to 85% of your benefits may be subject to Federal and state income tax as long as you remain employed.
You can also begin to take retirement distributions from retirement accounts at full retirement age without penalty, but you are not required to do so.
Age 70 and beyond: Delayed Distributions No Longer Work to Your Benefit
There is no longer a financial benefit to waiting to collect social security benefits at this point. Enjoy the fruits of your years of hard work!
Age 70 ½: Don’t Leave Retirement Funds Unattended
You must start taking annual required minimum distributions from your retirement accounts (with the exception of a ROTH IRA held in your name) by April 1, the year after you turn 70 ½. Distributions may result in additional income tax – but if you don’t take them, you may be hit with a tax penalty that could be much as half of the difference between the amount you took and should have taken.
If you’re self-employed but don’t own more than 5% of the business, you may not have to take the required distributions from that employer plan until you stop working.