The age of 50 is a milestone for many reasons — not the least of which is the fact that 50 is a nice, round number that’s also the equivalent of half-a-century.
Practically speaking, 50 is also an important age when it comes to your personal finances. Starting at 50, there are a number of age milestones that will have an impact on your retirement planning.
Hitting the Big 5-0
When you turn 50 years old, you can start taking advantage of what are referred to as “catch-up” contributions to certain qualified retirement plans like IRAs, 401(k)s and 403(b)s. This is a great way to turbo-charge your retirement savings as you start nearing your eventual retirement date.
The catch-up contribution amounts in 2018 are as follows:
- 401(k), 403(b) and 457 plans — An extra $6,000 per year for a total annual contribution amount of $24,500.
- Traditional IRAs — An extra $1,000 per year for a total annual contribution amount of $6,500.
- SIMPLE IRAs — An extra $3,000 per year for a total annual contribution amount of $15,500.
Just a little less than a decade later comes the next big age milestone of 59½. This is the age when you can start making withdrawals from your qualified retirement plan without having to pay the 10% federal income tax penalty. This applies to IRAs, 401(k)s and 403(b) plans but not 457 plans, which aren’t subject to the 10% penalty.
Getting Into Your 60s
There are three important age milestones once you enter your 60s. The first is age 62, which is when you will become eligible to begin receiving Social Security retirement benefits. Keep in mind, though, that you don’t have to start taking Social Security at age 62. In fact, the longer you wait, the higher your monthly benefit payment will be. Also, if you’re still working at age 62, your Social Security benefits will be reduced.
The next age milestone in your 60s is age 65, which is when you may qualify for Medicare. You should apply for Medicare three months before your 65th birthday. Note that if you are receiving Social Security retirement benefits, you’ll automatically be enrolled in Medicare Part A (which covers hospitalization) and Medicare Part B (your medical insurance) without having to apply.
The final age milestone in your 60s ranges between 65 and 67. This is when you’ll reach what’s referred to as your “full retirement age,” which is when you can receive 100 percent of your Social Security retirement benefits. As noted above, your monthly benefit payment is reduced permanently if you start receiving Social Security retirement benefits starting at age 62, but this reduction stops when you reach full retirement age.
Your full retirement age will depend on when you were born. If you were born in 1937 or earlier, your full retirement age is 65 and the age gradually rises from here. If you were born between 1943 and 1954 your full retirement age is 66 and if you were born in 1960 or later your full retirement age is 67.
Hitting Your 70s
The final important age milestone from a retirement perspective is age 70½. When you reach this age, you must begin taking what are referred to as required minimum distributions (or RMDs) from qualified retirement plans like 401(k)s, 403(b)s, 457s and traditional, SEP and SIMPLE IRAs.
The reason for RMDs is because the IRS doesn’t want you to leave your money in these tax-advantaged accounts indefinitely. RMD amounts are based on the account balance and the IRS’ Uniform Lifetime Table. There’s a steep price to be paid for not taking RMDs once you turn 70½ years old: an excise tax of 50 percent of the amount not withdrawn that should have been.
Please contact us if you have more questions about reaching these retirement age milestones.