Retirement Planning Milestones
Financial planning as we approach and walk-through retirement can be confusing. Retirement account contributions, retirement account distributions, social security options, Medicare options—oh my! While all this seems like a lot to navigate, growing older has many perks, as a retirement financial advisor can tell you! Here are some key milestones to help navigate your retirement planning flightpath:
Age 50: Catch-up Contributions
Retirement plan contributors who are age 50 and over at the end of the calendar year may make annual “catch-up contributions.” For example, if you are age 50 and older you are able to contribute an additional $6,500 in a 401(k) ($26,000 total in 2021). This would also apply to an IRA—you may contribute an extra $1,000 per year ($7,000 total in 2021).
Age 59 ½: Penalty-free Withdrawal
Generally, owners of a qualified retirement account, who take withdrawals before the age of 59 ½ pay tax on the distribution plus an additional 10% tax penalty. Once you reach 59 ½ however, the 10% penalty goes away. Just keep in mind that the income tax on the distributions remains.
Age 62: Social Security Eligibility
As part of your retirement planning, we can begin taking Social Security benefits at 62, however, doing so prior to full retirement age (see more below) can reduce your lifetime benefits by 25%. Benefit amounts are also reduced if you’re still working. It is important to speak to an advisor prior to making this decision. If you haven’t already, you may create an account to view your various benefit amounts at www.ssa.gov/myaccount/.
Age 65: Medicare Eligibility … and More!
• Medicare eligibility begins at age 65
Enrollment is open during a 7-month period that begins 3 months prior to turning 65. Sign up for Medicare Part A (hospital insurance) and decide if it is an appropriate time to also sign up for Part B. Timely enrollment is important, as a premium penalty of 10% can be added for life. Learn more at www.medicare.gov.
• Health Savings Accounts (HSA)
Once you enroll in Medicare, any HSA contributions must stop. However, 65 is also the age where those with health savings accounts may withdraw funds penalty free. To remain tax free, distributions must be used for a qualified medical expense. HSAs may also be used for A, B and D Medicare premiums penalty and tax free!
• Physical Fitness
Many gyms offer discounts or free exercise programs to those age 65 and older. Check out your community references as well as a SilverSneakers program near you (Home – SilverSneakers)!
• Defined Benefit Plans
Many plans such as a 401(k) or pension allow a person to start withdrawing funds or consolidate accounts and roll to an IRA.
Age 66-67: Full Retirement Age
This is where retirement planning really pays off. Full retirement age for Social Security depends on the year in which you were born. For those born in 1960 or later, your FRA is 67. If you were born prior to 1960, your FRA is on a sliding scale between 65 and 67. Once full retirement age is met, there are no longer earned income restrictions on benefits.
Age 70: Maximized Social Security benefits
For every year Social Security benefits are delayed, your benefit amount increases by about 8%. After age 70, it is no longer financially beneficial to delay benefits. If you have questions about this, contact a retirement financial advisor in Virginia Beach, Norfolk, and Chesapeake.
Age 72: Required Minimum Distributions (RMDs)
It used to be that required minimum distributions began at age 70 ½. This is when the government forces us to begin taxable distributions from traditional IRAs and 401(k)s. This age milestone has now changed to age 72 for anyone who has not turned 70 ½ by Jan. 1, 2020. RMDs not satisfied will incur a 50% penalty on top of the original amount. RMD calculations are based upon prior year-end value of the account, divided by the IRS’s life expectancy factor. RMDs can put a strain on your retirement income and tax strategy. It is important to plan ahead of time for these withdrawals.
Retirement Planning Summary
As retirement financial advisors, we cannot stress enough how important it is to plan and prepare for retirement. As you can see, there are many factors to consider, many of which can have serious penalties if not done correctly. The retirement planning experts in Virginia Beach, Norfolk, and Chesapeake, would be happy to talk to you about how to maximize your benefits while protecting your assets, to better prepare you for your retirement journey! Call Tull Financial Group today at 757-436-1122 to set up your in-person or virtual consultation today.