Retirement planning, when done right, starts as early as possible. But as we age and move throughout our lives there are several key ages and stages of life when opportunities arise that you need to know about.
For most people, this is basic retirement information. At least that is what I would’ve thought in my previous experience as a Private Wealth Manager for over twelve years.
But as I came to find out, a vast majority of people simply were not aware of what I’m about to talk about.
So just in case you’re not familiar with them either, here are a few age-related retirement planning issues that you need to know about.
Retirement Planning At Different Ages
Age 55: Time to get serious
Whether you plan to retire in the next 5-10 years (or more) doesn’t really matter. Now is the time to start to get your retirement plans in order (if you haven’t already) and start to figure out exactly what you’re going to do.
If you don’t have a financial advisor, tax advisor, or estate planning attorney lined up yet – now is the time. If you’re not sure how to find the right advisor for you and you want to learn specific things you need have in order – click here and learn more about my Christian Financial Coaching program and Preferred Partners. It will give you everything you need to get organized and ready.
Age 59 1/2: Age-Based In-Service Withdrawal Options
The earliest age that you can begin to take withdrawals (without a 10% early distribution penalty tax) from your qualified retirement plans (IRAs, 401ks, etc) is age 59 1/2. There are exceptions to the rule (such as qualified disabilities or medical expenses, for example), but in general, you cannot take withdrawals until you reach this age.
Another thing to consider is the opportunity for what’s known as an “Age-Based In-Service Withdrawal”. This is not available in every company, so you’ll have to check with the human resources department of your employer, but it’s definitely worth looking into.
This option allows qualified investors to be able to rollover their qualified plans – such as 401k, TSP, etc – into a self-directed IRA WHILE THEY ARE STILL WORKING!
This may be worth discussing with your advisors because, often times, investors can find more investment options available to them outside of their employer-sponsored plans. This can sometimes allow for further diversification and increased investment options that may be worth considering. Talk with your employer and mention it to your financial advisor to learn more about this option and see if this makes sense (or is even an option) for you.
Age 62: Social Security
62 is the first age that you are eligible to receive Social Security benefits. If you have retired, you can begin taking payments from the Social Security Administration (SSA) at this time. However, it is important to note that you will not necessarily receive the amount that is shown on the statement of benefits that you receive each year from the SSA. This amount is an approximation that is based on the idea that you will continue to work and contribute a certain portion of money into the fund. In many cases, this is simply not the case.
For example, it assumes that you’ll continue to work all the way up until age 62. What happens, however, if you retire before then? Obviously, the estimate will change. So don’t make plans based on the estimate alone because that’s all that the number really is.
Be sure to read more from the SSA themselves and speak to a qualified retirement advisor. Here is a good place to brush up on these rules.
Lastly, there are many things to consider when it comes to starting to take payments from Social Security. In many instances, it is beneficial to wait to take payments at your full retirement age rather than at age 62. Be sure to fully understand this issue and discuss this with qualified advisors.
Age 65: Medicare
All Americans are required to contribute a portion of their wages to Medicare. At age 65, you are finally eligible to sign up for and begin to receive benefits from this government-run health program. Part of the Medicare coverage is free (technically, you’ve paid for it as you’ve contributed for all of your working years before retirement, so “free” is a little deceiving) and part of it will cost you additional money. The additional portion that you may need to pay for is called Medicare Part B and is based on your MAGI – modified adjusted gross income.
To learn more about Medicare, click here.
Be sure to check out some of our Preferred Partners who specialize in Medicare conversations as well.
Age 70 1/2: Required Distributions
Many people are fortunate enough to not have to take withdrawals from their IRAs and other qualified retirement plans. They can make ends meet without having to draw down on these assets. When this is the case, they allow their investments to remain untouched and have the potential to continue to grow.
However, the government requires distributions at age 70 1/2 from all qualified retirement plans. But why?
The answer is simple.
When you invest in IRAs, 401Ks, and other similar retirement plans, you get a tax break at the time of the investment. Your money is invested without being taxed (tax-deferred). In a perfect world, if the money was never needed, you could simply let it grow and pass on the investment to your family at your death or at a time of your choosing.
But the government depends on tax dollars to operate. So this age-based rule requires that money is withdrawn for the simple fact that they have given you a tax break for all these years and now it’s time for Uncle Sam to get his share.
For those who fail to take distributions, there is, of course, a steep penalty that you’ll want to avoid. You can click here to learn more about this rule and the consequences of not taking withdrawals. As always, be sure to work closely with your advisors to keep up with this law and any others that you need to be aware of.
No matter where you are at in your retirement planning, it’s time to get serious. Don’t put off what you know to do today! Win with money at every stage of life.
**Disclosure: The information presented here is for informational purposes only. Please consult your advisors before making decisions regarding these issues.