Americans from ages 50 to 75 face several key retirement age-related milestones. Some represent hard retirement deadlines. Missing them can result in penalties. Some create opportunities. Others provide options for flexibility.
Knowing about these retirement ages and understanding the importance and significance of each can have a meaningful impact on your retirement years. Please keep each of these ages in mind. You don’t want to miss any of them.
1. Retirement Age 50: Catch-up Contributions to Retirement Savings.
As you enter your 50s, you may become more focused on retirement savings and planning. You may start thinking more seriously about retirement goals including when you want to retire and how much you need to save to achieve these goals.
Fortunately, the tax code provides an incentive for you to increase your retirement savings once you turn 50. If you contribute to either a traditional individual retirement account (IRA) or a Roth IRA, you can put away an additional $1,000 per year. If you participate in a company retirement plan such as a 401(k), 403(b), 457(b), or a Thrift Savings Plan (TSP), you can contribute up to an additional $7,500 this year.
These catch-up contribution provisions allow you to contribute up to $7,500 – $6,500 base contribution plus a $1,000 catch-up contribution – to a traditional IRA or Roth IRA. You can also contribute up to $30,000 – $22,500 base contribution plus a $7,500 catch-up contribution – to a workplace plan.
Remember that you can’t contribute $7,500 to both a traditional IRA and a Roth IRA. You cannot contribute more than $7,500 this year to both accounts on a combined basis.
Similarly, if you switch jobs during the year, you can’t contribute more than $30,000 to all the workplace retirement plans you participated in during the year.
Please keep the income limitations on traditional IRA/Roth IRA contributions in mind as well.
2. Retirement Age 55: Catch-up Contributions to Health Savings Accounts (HSAs).
As discussed in this recent blog, HSAs represent an often-overlooked retirement savings vehicle. Once you reach age 55, you can make an additional $1,000 catch-up contribution to your HSA. Remember that if both you and your spouse are 55 or over, you can each make a catch-up contribution. But if your employer deducts your HSA contributions directly from your pay, your spouse will need to have a separate HSA to make a catch-up contribution.
You should also keep in mind that you can often only make a catch-up contribution to your HSA for a 10-year period. Why? Age 65 represents the Medicare filing deadline for most people. You can’t contribute to an HSA once you start Medicare benefits.
In 2023, singles can contribute $3,850 to an HSA. If you have family coverage, you can contribute $7,750 to an HSA this year. These amounts are before any catch-up contributions. For more details on HSAs, you can also check the previously linked blog.
3. Age 55: Penalty-Free 401(k) Withdrawals.
Those 55 or over who have left their job can start withdrawing funds from their 401(k) without worrying about the 10% early withdrawal penalty. While no penalty applies, your withdrawals will still be taxed as ordinary income. Be careful though. This rule only applies to a 401(k) held by your last employer. If you withdraw funds from an employer you worked for prior to age 55 or your traditional or rollover IRA, you will still be subject to the early withdrawal penalty.
One word of caution. Retirement accounts provide you with a source of tax-free growth. Ideally, you want to give your portfolio more time to grow. The larger your account balance, the more you will have in the future.
4. Retirement Age 59 ½: Penalty-Free Retirement Account Withdrawals.
Starting at age 59 ½, you can withdraw funds from your retirement accounts, such as 401(k)s, IRAs, and Roth IRAs, without incurring a 10% early withdrawal penalty.
Note that if you have a Roth IRA that you have held for less than five years, any earnings (capital gains, dividends, interest, etc.) are taxable if you make a withdrawal. You should also note that for Roth conversions, this five-year period applies to any Roth conversion completed within the last five years.
Retirement account distributions get taxed as ordinary income. As a result, you want to keep the tax consequences of any withdrawal in mind. Once again, you should also remember that the longer you delay taking withdrawals, the more time your account will have to grow and compound.
5. Age 60: Time to Start Planning for Retirement?
Most clients and prospects I talk to start – or plan to start – thinking more seriously about retirement at 60. Plus, plans can be derailed by events like layoffs and health issues. As a result, 60 can be a good time to start thinking more about your intended lifestyle in retirement. You may also want to consider where you might want to live.
It can make sense to “practice” retirement. This includes estimating what your living expenses might be and determining if you can live on that amount. If you have identified activities you plan to spend time on in retirement, you may want to try doing them now (or doing them more often) to better gauge your true interest.
If you think you might relocate, consider vacationing in areas where you think you could live. You can take advantage of services like Airbnb or Vrbo, too. These services may allow you to stay in a residential area and get a local’s perspective. Visiting at different times of the year can help, too.
6. Retirement Age 62: Initial Social Security Eligibility.
Age 62 represents the earliest age at which you can start claiming Social Security benefits. But don’t be in too much of a hurry. Remember that your benefits get reduced for each month you claim them before full retirement age (FRA). FRA ranges from 66 for those born in 1954 or earlier to 67 for those born in 1960 or later. Those who claim benefits at age 62 will see a 25%-30% reduction relative to what they would receive at FRA. Spousal benefits can fall by 30%-35%, too.
A married couple should consider the impact that claiming strategies can have on the lower-earning spouse. If both spouses will receive benefits based on the higher-earning spouse’s earnings record, then the longer the higher-earning spouse delays claiming benefits, the higher the cumulative benefit will be. Waiting will also increase the survivor’s benefit. Please check this blog to learn more about couples and the Social Security claiming mistakes they can make.
7. Age 64 and Nine Months: Time to Apply for Medicare.
As a general rule, you should apply for Medicare during your Initial Enrollment Period (IEP). This represents the seven-month period that begins three months before the month of their 65th birthday and ends three months after the month of their 65th birthday. During this time, you can sign up for Medicare Part A, Part B, and Part D.
If you are already receiving Social Security benefits, you will be automatically enrolled in Medicare Parts A and B during your IEP.
Enrolling in Medicare during the IEP is important. Delaying enrollment can lead to a late enrollment penalty. The longer you wait to enroll in Medicare Part B, the larger this penalty becomes. Plus, if you don’t qualify for a special enrollment period, you must wait until the next general enrollment period. This occurs during the first quarter of each calendar year.
You can also be assessed a penalty on Part D coverage if you don’t sign up for Medicare coverage and do not have credible prescription drug coverage.
Please note that these penalties can result in larger monthly premiums for as long as you have Medicare coverage.
If you are still working and have employer-sponsored health insurance, you may be able to delay Medicare enrollment without incurring late enrollment penalties.
8. Retirement Age 65: Eligible for Higher Standard Deduction.
When you turn 65, you can start taking a higher standard deduction on your federal tax return. In 2023, married or widowed taxpayers can claim an additional $1,500. If both you and your spouse are 65, your standard deduction increases by $3,000. The standard deduction for joint filers below the age of 65 in 2023 is $27,700.
9. Retirement Ages 66, 67, and 70: Other Significant Dates for Social Security Benefits.
Based on when you were born, you become eligible to reach your FRA for Social Security purposes between the ages of 66 and 67. Those born in 1954 or earlier reach FRA at 66. From 1955 until 1960, FRA increases by two months per year. FRA for those born in 1960 or later is 67.
Postponing the start of Social Security past FRA and waiting until age 70 will result in your largest benefit. Those born in 1954 or earlier will receive a benefit that’s 32% higher than what they would have received at FRA. For those born in 1960 or later, the increase is 24%. Those in between those two extremes have their benefits increase at a graduated percentage.
As noted earlier, your Social Security benefit increases from age 62 through age 70.
10. Retirement Age 72, 73, or 75: Required Minimum Distributions (RMDs) Start.
Depending on when you were born, you must start taking mandatory withdrawals from your retirement savings accounts. Accounts subject to RMDs include 401(k)s, 403(b)s, 457(b)s, traditional IRAs, and SEP IRAs among others. RMDs from 401(k), profit-sharing, 403(b), or other defined contribution plans can generally be postponed beyond your applicable age if you are still working and own less than 5% of the company.
Beginning in 2019, the RMD age was increased to 72 effective with the 2020 tax year. SECURE Act 2.0 raised the RMD age to 73 beginning in 2023. Effective January 1, 2033, it jumps to 75. Note that if you turn 72 in 2023, your first RMD will be for 2024, the year your turn 73.
You do not want to miss your RMD. Failure to take the full amount of your RMD can result in a penalty of as much as 25%. (Note: SECURE Act 2.0 reduced the maximum penalty from 50% to 25%.
Final Thoughts on Key Retirement Milestones.
As with any important deadline, it helps to have a plan in place. Starting to think about your retirement plans at age 50 and making note of these key retirement age milestones can help you avoid unnecessary complications and make your post-career life a happier one. Having a financial plan – or even better a life plan – in place can also help reduce retirement-related stress and help you align your spending with what matters most to you.
I hope you find the above discussion helpful. If you have questions or would like some help related to any of these retirement age milestones, please schedule a free call. I’ll gladly answer any questions and assist in whatever way I can.
I’ll be back next week with something a little different for you.
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Phil Weiss founded Apprise Wealth Management. He started his financial services career in 1987 working as a tax professional for Deloitte & Touche. For the past 25+ years, he has worked extensively in the areas of financial planning and investment management. Phil is both a CFA charterholder and a CPA.
Located just north of Baltimore, Apprise works with clients face-to-face locally and can also work virtually regardless of location.