Critical Retirement Planning Ages: 55, 62, 70, & More
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When you're planning for retirement, your age is important, and that's because as you reach certain milestones, you may qualify for certain benefits, or you might need to take certain actions to avoid penalties. So that's what we're going to talk about in the next couple of minutes here. We'll go over these critical retirement dates so that you can get them in your planner or at least know what to expect as you move toward retirement. Two things happen at age 50. The first is you get to make catch up contributions. So if you are maximizing your contributions to your retirement accounts like a 401K or an IRA, you get the ability to put in even more money each year, which helps you boost your retirement savings as you near the end of your career. There's a separate benefit that might apply to certain public safety workers, so for example, if you're a firefighter employed by the federal government, you might have the opportunity to take withdrawals from retirement accounts as early as age 50 without any early withdrawal penalty from the IRS.
So make sure that you triple check the requirements, and of course, the longer you can keep your money saved, that might help you make it last longer. At age 55, the ability to take those early distributions from a workplace retirement plan. Opens up, and to meet that criteria, you have to terminate your job at age 55 or later and take the funds out of that job's retirement plan, like the 401k, for example. Again, this is something that you want to check carefully with your tax advisor, and this is probably a good time to give you a friendly reminder that this is just one short video, and it's not individualized advice.
You really do need to speak with an expert who is familiar with your situation, and they can help you make sure that you avoid any problems and potentially identify some opportunities for you. By the way, if you check the description below, you can look at some free retirement planning resources that I've put together, and I think you'll find useful.
At age 59 and a half, you have the ability to take withdrawals from retirement accounts without that early withdrawal penalty, so it doesn't just have to be a workplace account after you terminate employment, it can be your IRA, your 401K, deferred annuities, and other types of accounts. So you get a lot of flexibility once you reach age 59 and a half. Age 62 is the time when most people can start taking Social Security benefits, and that's what's called Early claiming, and if you do that, you get a reduced Social Security benefit, so you get less each month. This can be a big deal, so it can be helpful to get that income early, but you get a smaller monthly income amount, for example, if your full retirement age is 66 and a half, and your benefit is $1,000, or for every $1,000 of benefit, you're going to see a reduction of 27.5%, or to put that in dollar terms, you would get $725 each month instead of $1,000 each month, and that reduction lasts for the rest of your life and it could impact a spouse if they take over your benefit as a survivor, so you want to think carefully before you claim early, sometimes it makes sense, but you really want to do it mindfully.
Now to age 63, so your Medicare premiums are based on your income from two years back, so when you're 63 years old, you're within two years of 65, which is when you typically begin Medicare. That means if you have any way to control your income or if you're making Roth conversions to take some income intentionally, for example, at age 63, you want to get extra careful about how much income you're taking because you might bump up those Medicare premiums, it might make sense for you to do that, but you want to know what you're getting into. And when you reach age 65, that's when it's time to enroll in Medicare, and it's critical to enroll on time, because if you enroll late, you may face a late enrollment penalty that's going to last for the rest of your life, so that can be an unnecessary cost.
It's smart to start the process three months before you turn age 65, and that gets you some time to get your ducks in a row. Now, if you are still working and you get healthcare from your employer, it's really important to speak with your employer's benefits department and with the insurance company, just to find out what you need to do, if anything, and to set your expectations for when you might leave that job, you want to triple check this, especially if you're still working and you're covered under your employer's plan. Most people reach their Social Security full retirement age sometime around 66 to 67, and once you reach for retirement age, that means you don't have a reduction in your benefits and it also means that if you are earning money through work, which isn't exactly retired, but maybe you are still earning income, those earnings would not cause the deduction from your monthly Social Security income, so this is an important milestone for you to reach…
If Social Security is a big part of your income. When you delay taking Social Security income after your full retirement age, you get a bigger benefit, so the benefit increases by about 8% per year, it happens monthly, so you don't have to wait for a full calendar year, and then any future increases like cost of living adjustments go off of that higher amount, so it's nice to have a bigger income, and of course, the longer you expect to live, the more helpful that tends to be in many cases. Although there are other factors at play. And then when you reach age 70, those delayed retirement credits stop building up, so it doesn't make sense to wait any longer to take your benefits. Age 70 and a half is a weird one, because it used to be when you had to start your required minimum distributions or RMDs, but they changed the law, except for they left these qualified charitable distributions or QCDs in there at age 70 and a half.
It doesn't make any sense, but that's the way it is. So if you do want to make those QCDs, you can start doing that even before your RMDs if it makes sense, so please forgive all the acronyms, we will explain all these, but just be aware that you can begin doing those qualified charitable distributions at age 70 and a half, these are distributions that you make directly from a retirement account to the qualifying charity, and when you do it that way, you can exclude that from your income, which can be helpful. Age 72 is when most people these days have to start taking their required minimum distributions or RMDs. This is where the IRS says you cannot leave your money in a retirement account, tax sheltered forever, you have to start taking some distributions and generating a tax liability, so they start out relatively small and build up over time. Technically, you have until April 1st of the year following the year when you turn 72, so that's an option, if you want to wait till then or you can just do it in that same year, it's up to you, but the most important thing to know might be that there is a very steep penalty for missing these required minimum distributions, if you don't take one in a given year, the penalty is 50% of the amount that you were supposed to take…
So if you were supposed to take 10,000, it's a 5,000 penalty. That's a big one. So far, we've talked about government programs and tax rules, but there might be some other programs that you qualify for, maybe a pension from an employer, for example, and those might have totally different numbers that apply to them, so check with your plan administrator, read through the documents and you can get all of those details. Now, I hope you've found this helpful. If you did, please leave a quick thumbs up, thanks for watching, and take care..
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