Age Matters

Many of us think of retirement happening at the age of 65. It’s important to be aware of many decision points along the way.

Age 50: If you have an active retirement plan, be it a 401(k), an IRA, a 457 plan or others, you can add more funds every year than those under 50. (Known as the catch- up provision)

Age 55: If you have an employer sponsored plan like a 401(k) and you retire between 55 and 59½, you can take withdrawals from your plan without having to pay a 10% IRS penalty. These must be taken over the first five years and must be the same amount every year. It is tricky, so see a tax advisor.

Age 59½: Yay, no 10% tax penalty on withdraws from any of your retirement plans (except the Roth which you must have first funded five years previous). If you funded your retirement plan with pre-tax money, taxes are still due but no penalty for early withdrawal. Of course, if you have an employer sponsored plan and are still working, there may be constraints on withdrawals.

Age 62: The first age you are eligible to take a Social Security retirement benefit. This may be based on your own working record or that of your spouse, your ex-spouse or your divorced spouse. Be aware that if you start at age 62, your benefits will be lower and will remain low throughout your lifetime.

Age 65: Medicare Eligibility Enrollment into this health insurance starts three months before your birthday and continues for three months after for a total of seven months. If you miss this window, generally your premiums will be higher forever.

Age 67: This is the Full Retirement Age (FRA) for Social Security retirement benefits for those born in 1960 and later. For those born before 1960, it will be some age between 65 and 67. FRA is used as the age that the Social Security Administration decides the base of your benefit, and thus how much less it will be if you file for benefits before this age, and how much more it will if you start your retirement benefit after this age. Your benefit has a cost of living increase built in.

Age 70: Welcome to the age that your Social Security benefit is the maximum if you have not yet started. Every year you wait until your FRA up to 70 to start your benefit, it increases 8%.

Age 70 ½: The IRS has decided that now you must start withdrawing funds from your retirement plans. This is called the Required Minimum Distribution (RMD). Generally, the first year the withdrawal amount is about 3.5% of the funds, and that percentage increases every year. If you do not take your RMD, the penalty is hefty – 50% of what you should have taken out.