Important Age Milestones As You Plan For RetirementSubmitted by Silverlight Asset Management, LLC on August 13th, 2018
Readers who have kids—or who remember being one—know the importance of coming-of-age birthdays. Turning 13 means shedding the kid stuff and acting more like an adult (or at least attempting to). Turning 16 in most places means getting a driver’s license, while turning 18 gives us the right to vote. We can legally buy alcohol at 21.
After age 21, however, there is arguably a wide gap where birthdays don’t involve many changes to our rights and/or don’t necessarily have a special meaning.
Turning 40 was once popularized for being the “over the hill” birthday, but people are living longer, healthier lives. Tom Brady, at 41, is still the starting quarterback for the New England Patriots! 50 is the new 40.
Birthdays really start to matter again at age 50. That’s because Social Security, IRA contributions and withdrawals, Medicare, and Required Minimum Distributions are amongst the financial variables affected by age, and they all have key markers starting at age 50.
It’s difficult for folks to keep up with all the changes and rules based on age, so here’s a summary of the most important ones.
Age 50: Catching Up
50 marks the age where investors get a bump in the amount they can contribute to retirement accounts.
In 2018, if you’re under the age of 50, you can only contribute $5,500 to an IRA or a Roth IRA. But after you turn 50, you can increase that amount to $6,500, which means saving more and possibly getting a bigger tax deduction.
The same goes for 401(k)s, 457 plans, and 403(b)s. People under the age of 50 can contribute $18,500 per year to these plans, but once you turn 50, the number jumps to $24,500.
Age 59 ½: Making Penalty-Free Withdrawals
Withdrawing money from a 401(k) or IRA before age 59 ½, generally speaking, will incur a 10% penalty plus the income tax due on the withdrawal.
The penalty goes away at age 59 ½, and investors can turn their IRAs and 401(k)s into cash flow generating accounts—without fear of paying a penalty.
Age 62: Social Security Window Opens
62 is the earliest age you may begin collecting Social Security benefits. If financially possible, however, it is usually smart to avoid doing so. Starting benefits at age 62 means only getting 75% of the full benefit you’d be eligible for if you waited until ‘full retirement age,’ which is 66 or 67 (more on that below).
Age 65: Signing Up for Medicare
You are first eligible to sign up for Medicare during a seven-month period that begins three months before your 65th birthday, and continues for four months afterward. It’s crucial to sign up for Medicare on time—not doing so could mean facing permanent penalties.
Turning 65 also opens the window to sign up for Medigap policies that may suit your needs, and the timing is once again crucial—you must sign up within an eight-month timeframe of turning 65.
Age 66: Full Retirement Age!
If you were born between 1943 and 1954, your full retirement age for Social Security benefits begins with your 66th birthday. People who wait until full retirement age to take Social Security will receive 100% of their retirement benefit.
To note, you could actually continue to defer your Social Security benefits until age 70, and your benefit would actually continue increasing.
A general rule of thumb with Social Security is to wait and defer if you can.
Age 67: Full Retirement Age, Take 2
If you were born in 1960 or later, 67 is your full retirement age.
Note: It's a little more complicated if you were born between 1955 and 1959. If that's the case, the table below helps identify your full retirement age.
|Year of Birth||Full Retirement Age|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
Age 70: Social Security Maxes Out
If you defer taking Social Security after your full retirement age, your benefit will continue to grow by 8% each year—with an added cost of living adjustment (inflation)—until you turn 70. Then your Social Security retirement benefit stops growing, so there is no extra benefit to waiting any longer.
Waiting until age 70 for Social Security means collecting 132% of your full retirement age benefit, plus the cost of living adjustment.
Age 70 ½: Required Minimum Distributions
This is the age where the IRS requires retirees to begin making withdrawals from retirement accounts, whether they be IRAs, 401(k)s, 403(b)s, 457s, SEPs, SARSEPs, or SIMPLE IRAs.
Known as the ‘Required Minimum Distribution (RMD),’ they are generally the minimum amounts that a retirement plan account owner must withdraw annually, based on government life-expectancy tables.
There is an exception, however, if you continue working past age 70 ½. In that case, RMDs generally begin in the year you retire.
If you thought birthdays or half-birthdays only mattered when you were younger, now you know better! There are still perks that come with aging, even after we turn 50.
Also published by RealClearMarkets. Reprinted with permission.
This material is not intended to be relied upon as a forecast, research or investment advice. The opinions expressed are as of the date indicated and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by Silverlight Asset Management LLC to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Silverlight Asset Management LLC, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any of these views will come to pass. Reliance upon information in this post is at the sole discretion of the reader.