The Milestone Ages When Planning for Your Retirement
By Christopher L. Hudson, CIMA
As one plans for, and moves through, retirement – there are certain key, or milestone, ages that need to be recognized from a planning perspective. Those ages are:
- Age 50
- Age 55
- Age 59 ½
- Age 62
- Age 65
- Age 66
- Age 67
- Age 70
- Age 72
Let’s look briefly at each and why they are considered “milestone ages” in the retirement planning process.
Age 50: The “Catch-Up” Contribution:
Beginning at age 50, investors can make a “catch-up” contribution to both their qualified retirement plan and IRA / Roth IRA accounts. In 2022, employees under the age of 50 can put away up to $20,500 into a qualified retirement plan at work. Those who are 50+ can put away an additional $6,500 in the form of a “catch-up” contribution bringing their total up to $27,000 this year.
The contribution limit for traditional IRA accounts, as well as Roth IRA’s, is $6,000 in 2022. Anyone that is 50 or older, and is eligible to make a contribution, can put away an additional $1,000 bringing their total to $7,000 in calendar year 2022.
As you get older, the IRS allows you to put away more money towards your retirement through the “catch-up” contribution.
Age 55: Penalty Free Withdrawals from a Qualified Retirement Plan:
If an employee separates from service (retires, transitions, leaves the company) in the calendar year that they turn age 55 or older (age 56, 57, 58, 59), and their company allows such distributions, they can take withdrawals directly from the company plan and avoid the 10% early withdrawal penalty. This would allow the employee to avoid not only the penalty but also waiting until age 59 ½ to access their retirement funds and the restrictions placed on Rule 72t distributions. Not all companies allow this so please check with your plan administrator before taking any distributions prior to reaching age 59 ½.
Age 59 ½: Avoiding the 10% Early Withdrawal Penalty:
Beginning at age 59 ½ investors are able to take withdrawals from their qualified retirement plan, IRA and/or Roth IRA and avoid the 10% early withdrawal penalty.
Age 62: Early Social Security Eligibility:
You can start to receive your Social Security retirement benefits beginning at age 62, but the benefit amount will be lower than your full retirement benefit. You will receive your full, unreduced, benefit beginning at Full Retirement Age (FRA). In order to qualify, you must have paid into the system for at least 10 years (40 quarters).
Age 65: Medicare:
Medicare is health insurance for people age 65 and older. You are eligible to sign-up for Medicare 3 months prior to the month that you turn age 65. If you are already receiving Social Security, you will automatically be enrolled in Medicare Parts A and B without an additional application.
If you are still working at age 65 and your current employer has 20 or more employees (and offers a healthcare plan), you do not have to enroll for Medicare if you do not want to. Your employer’s group plan is the primary payer, which means they pay first on any healthcare bills that you have. You can delay enrollment into Medicare until after retirement.
If you work for a smaller company with less than 20 employees, you must sign-up for Medicare as soon as you are eligible.
Age 66: Full Retirement Age for Individuals Born in 1943-1954:
Full Retirement Age – the age when an individual is able to collect their full (unreduced) Social Security retirement benefit is age 66 for anyone born between the years of 1943 to 1954. If you were born after 1954, your Full Retirement Age (FRA) goes up by 2 months for every year after 1954 until 1960.
Age 67: Full Retirement Age for Individuals Born in 1960 or Later:
Full Retirement Age (FRA) for anyone born in 1960 or later is age 67. They will receive a full (unreduced) Social Security retirement benefit beginning at age 67.
Age 70: Social Security Retirement Benefit Growth if Delayed:
If you delay claiming (taking) your Social Security retirement benefit, your income benefit will increase by roughly 8% per year from Full Retirement Age (FRA) to the age of 70. It will no longer increase after age 70.
Age 72: Required Minimum Distributions (RMD’s);
A Required Minimum Distribution (RMD) is the minimum amount of money that must be withdrawn from a traditional IRA, employer sponsored retirement plan, SEP or SIMPLE individual retirement account by the owner and/or plan participant beginning at a certain age. The withdrawal must be made by April 1st of the year following the year the owner turns age 72.
Contributions to a traditional IRA may be tax-deductible depending on the taxpayer's income, tax-filing status, and other factors. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.
Like Traditional IRAs, contribution limits apply to Roth IRAs. In addition, with a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRA are never tax deductible, but if certain conditions are met, distributions will be completely income tax free.
RMD's are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation.
