There are several key birthdays that significantly impact the future of your retirement. Your pre-retirement plays a major role in how successful the rest of your retirement is, and there are key dates and age milestones to plan for that will help set you up for a successful retirement. Here are four crucial ages to bear in mind while shaping your financial future:
- Age 50: Catch-Up Contributions
Once you hit the 50-year mark, you’re allowed to put a larger amount into your retirement funds than what was permitted during your younger years.[1] In 2023, those who are 50 years old and above with a 401(k) can allocate $30,000 to their account, which is $7,500 more than the usual limit for those aged 49 and below.[1] As for IRA account holders, they can allot $7,500 annually to their accounts.[1]
- Age 59 ½: Penalty-Free Withdrawals
Most retirement funds permit penalty-free withdrawals once you’ve attained the age of 59 ½.[1] Early withdrawal, prior to this age, usually results in a minimum of 10% tax penalty on top of any other applicable taxes connected to the withdrawal.[2] Certain funds do offer the flexibility of penalty-free withdrawals under certain circumstances before you reach 59 ½.[3] You can also avoid fees if you qualify for a hardship withdrawal.[4] But, in most scenarios, you’ll have to wait until 59 ½ to withdraw from your retirement accounts free of penalties.[1]
- Age 62: Claiming Social Security is an Option
Determining the right time to apply for Social Security can be a complex issue. The minimum age requirement to start claiming is 62 years old.[1] However, at 62, you are not deemed to have reached the “full retirement age,” so your Social Security claim won’t be at its maximum value and your subsequent payouts will be less.[1] Nevertheless, you have the option to start claiming at 62, should it align with your financial strategy.
- Age 65: Medicare
The opportunity for Medicare enrollment begins three months prior to your 65th birthday.[1] A total of seven months is allotted for you to choose your enrollment destination: this includes the three months leading up to your 65th birthday, the month in which you turn 65, and the subsequent three months following your birthday.[1]
There are numerous elements and significant dates involved in retirement that you might not be aware of, especially when it comes to outlining your retirement roadmap during your pre-retirement years and beyond. If you realize you don’t have a fully comprehensive retirement timeline planned, contact us today for a complimentary evaluation of your financial situation.
[1] https://money.usnews.com/money/retirement/aging/articles/10-important-ages-for-retirement-planning
[2] https://www.investopedia.com/terms/w/withdrawal-penalty.asp#:~:text=Early%20withdrawals%20from%20a%20401,at%20the%20time%20of%20withdrawal.
[3] https://www.irs.gov/retirement-plans/hardships-early-withdrawals-and-loans
[4] https://www.investopedia.com/ask/answers/082515/how-do-you-calculate-penalties-ira-or-roth-ira-early-withdrawal.asp#:~:text=The%20early%20withdrawal%20penalty%20for%20a%20traditional%20or%20Roth%20individual,income%20tax%20and%20the%20penalty.