For well-prepared investors, retirement milestones are something to be celebrated. However, getting to the big day stress-free takes a lot of organization and planning.
Keeping key dates in mind is one of the most important aspects of planning ahead and mitigating stress. We’ve covered these retirement milestones in the past, and we receive so many requests for this information, we decided to put it all together in one place for our readers.
Retirement Planning Milestones
In preparing for retirement, there are nine deadlines everyone should keep in mind. These affect your retirement, taxes, Social Security, Medicare and other aspects of your financial health.
Age 50: When you turn 50, you can begin contributing an additional tax-deferred amount of $6,000 to your 401k.
As of 2019, the limit is $19,000 each year before you turn 50, but after this age you can add up to $25,000 a year. All contributions reduce your overall taxable income in a given year.
Age 55: You can now withdraw funds from your 401k without incurring the usual 10 percent penalty. You will have to pay income taxes on any amount you pull from your retirement account but avoiding the 10 percent penalty can be a valuable tool.
Also, at 55, you can contribute an additional $1,000 into your health savings account, if you qualify and have a high deductible health insurance plan. The cap is $4,350 for an individual health savings account and $7,650 for a family HSA.
Because so many itemized deductions were done away with by the 2018 tax overhaul, one nice aspect of this additional $1,000 is that it comes off the top for tax purposes, which may really help mitigate some of the pain from the loss of deductions.
Age 59 ½ : At this age, you may start withdrawing money from your IRA pension program without paying an additional 10 percent penalty.
Age 60: Once you hit the sexagenarian mark, you can begin collecting survivor benefits on a deceased spouse’s Social Security. It’s important to remember, however, that if you begin collecting at this point in your life, you are likely going to only take home 71 percent of the full benefit.
That means you will collect 29 percent less than the benefit at full retirement age, which is likely to be 66 or 67, depending on your current age.
You also need to be careful about taking this benefit at 60 if you are still working. Generally, you do not want to take the benefit at this point because if you exceed a certain amount of income you will be subject to the earnings test, reducing your benefits.
Instead, plan to hold off taking a survivor benefit, especially if you are working, and allow it to accumulate, providing more return in the long run.
Age 62: At this point, you can access Social Security. It may be better to wait to take benefits, however, because at 62 you're only going to get 75 percent of your full retirement benefits that you would at age 66 or 67.
Also, at 62 you’ll become eligible to qualify for a reverse mortgage. These sponsored programs allow you to live in your home while tapping your equity, which you can use as income to pay expenses.
Age 65: Congratulations, you are now eligible for Medicare. It isn’t necessary to enroll in Medicare if you're still working and are covered by an employer plan. If you are no longer working, however, you need to enroll during the enrollment period, which begins three months before you turn 65, and extends to three months after.
If you don't enroll during this window you may be subject to a penalty. Be aware, however, that once you turn 65 and enroll in Medicare, you can no longer contribute to a health savings account.
Age 66: If you were born between 1943 and 1954, turning 66 means you now qualify for full retirement under Social Security rules. At this age, you will now receive 100 percent of your benefit, provided you fall within the cutoff dates.
Those born between Jan. 2*, 1955 and Jan 1, 1960 have a somewhat convoluted setup. If you were born in 1955, you hit full retirement at 66 years of age plus two months. Each year thereafter adds two months to full retirement age: So, from 1956, full retirement age is 66 plus four months; from 1957, full retirement is 66 plus six months; from 1958, full retirement is 66 plus eight months; and from 1959—actually, this extends to those born on Jan. 1, 1960—full retirement is 66 plus 10 months.
*Social Security benefits are calculated such that, if you were born on the first of any given month, your benefit is figured as though you were born in the month prior. So, if you were lucky enough to be born on Jan. 1, 1955, you came in just under the wire to qualify for full retirement at 66.
Age 67: If you were born after Jan. 2, 1960, your full retirement age is 67.
Age 70: The moment you turn 70, your Social Security benefits will no longer grow by the usual eight percent on an annual basis if you defer taking benefits. After this age, deferred benefits will only grow by cost-of-living adjustments. This means you should most likely take your benefit at 70, unless there are unusual extenuating circumstances.
Age 70 ½ : If you’re 70 ½ , you are now required to take a mandatory distribution annually from every IRA plan you own.
If you don't take a distribution, you will pay a 50 percent tax penalty on the amount that you should have taken out. For this reason, it’s wise to consolidate all IRAs into one account to avoid the mistake.
“Every one of these dates are important,” Jim Puplava said in a recent podcast. “They should become a part of your planning process prior to considering retirement and even when you are retired.”
To listen to the full podcast and interview, see Social Security and Medicare Costs Expected to Soar. For the full archive of our free and premium podcast shows, go to our Financial Sense Newshour podcast page.