Do you know the relevant ages when it comes to retirement? Are you aware of the paramount ones? If not, this post will be of great use you and anyone you know who is thinking of retirement. And yes there are some key age milestones that are more important than others. If you are younger, as I once thought, 30 and 40 were key ages in life. Well, as it turns out the key ages start at 50. Now do not misunderstand me, 50 is not when you start to think or save for retirement. For that, you start as soon as you can, preferably before you are even out of school. If you are younger or a parent do the math in Excel and see what time and compounding interest can do over a 35 or 40 year period in an IRA. And if you start when you are first able to work, around 15 or 16, that means your IRA would grow for at least 43 years. Seriously, get in Excel and play with the Future Value (FV) function and see for yourself. I think you will be amazed.
So the first significant age on our path to retirement is age 50. Why is this so important you may be asking. Well at 50 the IRS allows for catch-up contributions in your retirement accounts. If you started late the government has set this age at which you are allowed to put even more money away in work plans such as 401(k)’s, 403(b)’s and the federal government’s Thrift Savings Plan. And if you contribute to a Traditional or ROTH IRA you are allowed a catch-up contribution there as well. For work plans and people under the age of 50, they can contribute $18,000 a year and for those over 50 they get an additional $6,000 for a total of $24,000 annually. For IRA’s the annual contribution is $5,500, and the IRS provides an additional $1,000 in catch-up for a total of $6,500 a year. And it is not a coincidence that this is also the age at which financial planners and like-minded professionals will start sending you information in the mail. This mailing may be simple news and information on services that people offer, or they may even be free lunches or dinners to go listen to the professional speak about their services. In many instances, there are no reasons why you should not take advantage of free information but if you decide to use one of these do your due diligence and always seek references before hiring anyone.
Now the next key age is one that many people are not aware of in the scheme of their retirement, and that is age 55. While this age is not a key milestone, it can be very significant if you retire or are working at this age. If you are retiring from a current job and are at least 55 at that time, and you have a workplace savings plan such as a 401(k) you are allowed to make a withdrawal prior to the normal age of 59 ½ without incurring the 10% penalty that the IRS typically imposes. This will only work when you retire from that job and are already age 55. If you retire from a job prior to age 55 and then when you reach 55 take money out of the plan you will be assessed the 10% penalty. Now any withdrawals you make will be taxed as ordinary income so keep that in mind as taxes will always play a key role in how much people will withdrawal from a retirement account.
Here is a key age that almost everyone is aware of and that is 59 ½. This is the age at which people can tap into IRA and 401(k) accounts without incurring the 10% penalty. This is also the age at which most annuities can begin to make payments without penalty as well. With annuities and IRA’s, there may still be penalties depending on the investment. Annuities will have stiff penalties for early termination or withdrawals such as surrender fees. And an IRA could have early withdrawal fees if the money were invested in say certificate of deposits. When in doubt read your contract, ask a professional or seek more information from your financial institution.
The next few ages are all centered on Social Security benefits except the very last. For anyone who has worked for 40 qualified quarters or ten years they are eligible for some level of Social Security starting at age 62. This is the age in which anyone who has accumulated the necessary history may begin collecting their retirement benefits. Now for those who were born after 1960, by taking their Social Security benefits at age 62 will mean they are accepting benefits five years prior to their full retirement age. By doing this, it also means that they will forfeit about 30% of their full retirement benefits by taking an early retirement. And this reduction is permanent and will last for the remainder of your life.
65 is the next key age and the one that for older people represented their full retirement age with regards to Social Security. Now for most workers it represents the age at which you are eligible to apply for and receive Medicare. People are allowed to sign up for Medicare as early as three months prior to the month of their 65th birthday. If you are still working, it is important to still sign up for Medicare within the time window allowed as to not forfeit your benefits or be penalized if you sign up at a later date. For more information on this benefit do a Google search for Medicare or seek out a financial planner or insurance specialist.
Now 67 is the key age for anyone born after 1960 as this is your full retirement age and the age at which your Social Security benefits will not be reduced. Now remember that this is not the age at which you can start to receive benefits but rather the age where they will not be reduced. This is also the age at which you can continue to work, and you will not be penalized for earning too much in earned income.
Now if you can work past 67, and more importantly you enjoy what you are doing 70 is the next and final key age we will discuss. From age 67-69 you will receive a raise in your Social Security benefits of 8% a year for those three years that you defer your benefits payments. Yes, that is automatic and guaranteed 24% raise in your Social Security benefits for the rest of your life. Now that is a good deal if you can go without the monthly benefits until you reach age 70. It also will help if you have a history of longevity in your family as well. And in your 70th year you will also need to start taking the mandatory withdrawals from your Traditional IRA accounts and any work plans provided you are still not working at the job where your final plan is located. Any other workplace plans will be required to have minimum withdrawals as you are no longer employed at the company where those plans are located. The exception is just to the last place of employment and that plan in the event you are over the age of 70 ½.
While it is crucial that you start saving for your retirement as early as you can, these are the most critical ages you need to be aware of going into your later working years. If you are like me, you may have no plans on retirement at age 67. But you never know what may or may not happen between now and then as it may be 30 or 40 years away for some people. And for others it may be much closer and will thereby be more crucial that you pay attention to these key dates.
If you have any questions or concerns, please feel free to contact me directly.
