8 Important Birthdays for Retirement Planning

Keystone Financial Group |

Age and money are two taboo topics in polite conversation, and with good reason: Talking about these topics is an emotional trigger for many people. However, it is important to have these conversations, especially when it comes to planning for the future.

As financial professionals, it is our job to help clients realize that timing is crucial for many aspects of retirement planning. As you draw closer to retirement age, you will want to pay particular attention to specific birthday milestones and how they may impact your retirement nest egg. There are a few rules and guidelines that you'll want to be aware of both before and after your retirement date.

Your age impacts not only how much you will receive during your distribution phase, but also what you should keep in mind to avoid any negative consequences or penalties on your retirement accounts.

Here are 8 birthday milestones1 that can impact your retirement plan, your distribution plan, and how long your retirement savings will last:

Age 50: Take Advantage of Senior Discounts

AARP is a non-profit, non-partisan organization that discounts everything from travel services to restaurants to identity theft protection for its members. If you're watching their pennies, you might consider joining programs like this to save money and keep your retirement savings working harder for you.

Age 55: The 401(k) and the Rule of 55

The Rule of 55 is an IRS provision that allows withdrawals from a 401(k) before age 59½ while avoiding the 10% early withdrawal penalty. You should be aware that, regardless of why you leave your employer, you must do it in the calendar year you turn 55 (or later) to be eligible for a penalty-free distribution. You should also know that this can’t be a withdrawal from a previous employer.

Also remember that, while you may gain early access to your retirement funds using this method, your withdrawals are still considered income and are subject to federal taxes.

Age 59 1/2: The IRA Retirement Age

Holding onto an IRA for at least five years before reaching this age milestone means you can now take distributions and avoid the 10% early withdrawal penalty.

Be sure you understand the tax implications of this distribution. While any nondeductible contributions (think Roth IRA funded with after-tax dollars) may be tax-free, the money put into a traditional IRA and the associated growth on earnings is taxable when you withdraw it.

Age 62: Eligible to Begin Social Security Payments

Currently, eligible recipients can start collecting Social Security payments at age 62. However, monthly payments could be reduced by as much as 30% if payments begin before full retirement age.

On the flip side, choosing to work and collect Social Security simultaneously could result in reduced payments by $1 for every $2 earned above $19,560.

Be sure you understand how filing early will impact both your current benefit and any future benefits that may be available to you (such as spousal and survivor benefits).

Age 65: Medicare Eligibility Begins

This age can be tricky regarding the associated date, so you should explore your options early to avoid penalties. Medicare open enrollment happens in the fall each year, and that window opens three months before the month when you'll turn 65.

The open enrollment period is important because Medicare Part B premiums increase by 10% for each 12-month period you’re eligible for benefits but don’t enroll. If you are waiting because of a work health plan, remember that you only have eight months to enroll without penalty once you do stop working.

Ages 66-67: Social Security Full Retirement Age (FRA)

Anyone born between 1943 and 1954 qualifies at age 66, while those born after 1959 will be eligible for full benefits at age 67 under current law.

It’s important to fully understand this milestone as it can significantly impact your nest egg. Waiting to file for Social Security until you hit full retirement age is the only way that both you and your spouse will be eligible for the full benefit entitled to you. Maximizing your Social Security benefit is a great way to stretch your retirement savings further.

Also, once you reach full retirement age, you can still work as much as you want while receiving Social Security benefits, without having any of your payments withheld.

If you choose to wait until after full retirement age to claim your benefit, you can increase your benefit by approximately 8% per year until age 70 (see below).

Age 70: Maximize Monthly Social Security Payments

Social Security payments increase by 8% each year between full retirement age and age 70.

For example, baby boomers whose full retirement age is 66 can increase their Social Security benefit by 32% by waiting until age 70 to sign up, boosting a $1,000 Social Security payment to $1,320 per month. Those born after 1959 will get 24% more by claiming payments beginning at age 70. (After age 70, there’s no additional benefit to waiting.)

This doesn't mean waiting to claim at age 70 is the right option for everyone; you will want to analyze your retirement plan, along with your goals, your marital status, and your expected longevity to see if waiting makes sense. A qualified Social Security specialist can help you with this.

Age 72: The 401(k) & IRA Required Minimum Distribution (RMD)

Having money in a retirement plan such as a 401(k) or traditional IRA means the first distribution must be taken by April 1 of the year after turning 72 (70½ if you reached 70½ before January 1, 2020).

It might be worth mentioning that more than the minimum can be taken, but the entire withdrawal is taxable income. You should also be aware that the penalty for missing a required minimum distribution (RMD) is a stiff 50% of the amount that should have been taken.

Did you know that you can delay RMDs? That's right, if you are continuing to work after age 72 for a company you don’t own, you can delay 401(k) withdrawals from the retirement account at that job until you actually retire.

qualified charitable distribution from an IRA directly to a qualifying charity can also satisfy the minimum distribution requirement. Roth IRAs do not have withdrawal requirements in retirement.

Final Thoughts

As you can see, when nearing retirement, there's a lot more to your birthday than just cake and gifts! It's important to address these essential conversations around age and money in advance to avoid making costly mistakes. It may be a little uncomfortable, but keep your retirement goals in mind, and you'll realize it's well-worth it to make sure you have a solid plan in place.

It's never too early to make sure your retirement plan is on the right track! Reach out to us today to schedule a FREE Retirement Ready-Or-Not Analysis, and make sure you're prepared for these important milestones when they arrive.




1.) Adapted from FIGMarketing.com & used with permission.



The content within this article is for educational purposes only and does not represent legal, tax or investment advice. Customers should consult a legal or tax professional regarding their own situation. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.