Introduction
In today’s Cardinal lesson, we’re dissecting the essential ages and milestones you need to be aware of as you approach and navigate through retirement. Just like how we know key ages during our younger years—like getting a learner’s permit at 15 or legally drinking at 21—there are crucial milestones in our later years that impact our financial planning and well-being.
Age 50: Catch-Up Contributions
Starting at age 50, you can begin making catch-up contributions to your 401(k) and IRAs. In 2024, individuals under 50 can contribute up to $23,000 to their 401(k), but those 50 and over can add an extra $7,500. This is a great time to review your contributions and consider switching some or all to Roth contributions to enjoy tax-free money in retirement.
Age 55: Penalty-Free Withdrawals
At 55, if you retire, you can withdraw from your 401(k) without the 10% penalty, provided you meet certain conditions. This special provision allows you to access your funds to live off of without facing the early withdrawal penalty, giving you more flexibility in your retirement planning.
Age 59.5: Penalty-Free Withdrawals from Retirement Accounts
At age 59.5, you can withdraw from any retirement account without incurring the 10% penalty. This is significant as it opens up various options for managing your retirement funds, including Roth conversions without the early withdrawal penalty.
Age 62: Starting Social Security
Age 62 is the earliest age at which most people can start claiming Social Security benefits. However, starting early means a reduced benefit amount, up to 30% less than the full retirement age benefit. If you’re still working and claim Social Security, you might also have to give some of it back if you earn above a certain threshold.
Age 65: Medicare Eligibility
At age 65, you become eligible for Medicare. This milestone requires careful planning, especially if you’re still working and covered under group insurance. Deciding when to sign up for Medicare depends on your employment and insurance status, and understanding your options can help you avoid penalties.
Age 66/67: Full Retirement Age for Social Security
For those born between 1943 and 1959, the full retirement age for Social Security is around 66. For those born in 1960 or later, it is 67. At full retirement age, you can claim your full Social Security benefits and continue working without any reduction in your benefits.
Age 70: Maximum Social Security Benefits
At age 70, you must start claiming Social Security benefits if you haven’t already. Waiting until 70 allows you to receive the maximum possible benefit. This strategy is often recommended for higher earners to maximize their Social Security checks.
Age 70.5: Qualified Charitable Distributions
At age 70.5, you are eligible to make Qualified Charitable Distributions (QCDs) from your IRA. This allows you to donate directly to a charity from your IRA without having to pay taxes on the distribution, which can be a tax-efficient way to manage your required minimum distributions and charitable giving.
Age 73/75: Required Minimum Distributions (RMDs)
Under the SECURE Act, the age for required minimum distributions (RMDs) has been moved to 73 for those born in 1951 or later and to 75 for those born in 1960 or after. This delay gives you more time to plan your distributions strategically to minimize taxes.
Conclusion
Understanding these milestones helps you avoid costly mistakes, maximize your retirement savings, and manage your taxes efficiently. If you have any questions or need personalized advice, don’t hesitate to reach out to us for a consultation. We’re here to help you navigate your retirement planning and ensure you make the best decisions for your future.
