When our children are small, we read books about child development and take delight when our little prodigies talk, feed themselves, and hit other development milestones early or on target. Likewise, we worry when they're not reaching those milestones when expected. Over the years, the milestones become fewer and less predictable. As adults, we don't really focus on our own milestones.
That is not to say that we shouldn't! Seeing the balance in your retirement account may not be as thrilling as watching a baby take his first few faltering steps, but you will be very glad someday that you took the time to pay attention to this and other details of your financial future.
As you enter your fifties, retirement, once a hazy eventuality on the horizon, begins to take form and seem closer than ever. Your kids may be in high school or college, an empty nest is looming, and for the first time in decades, you can anticipate having the time and freedom to do what YOU want to do. But will you have the money with which to do it?
Yes, if you know how to make sure your planning is on track. Here are some of the age-related retirement milestones you should be aware of.
When you turn 50 you may realize that you haven't been contributing to your retirement accounts as steadily as you would have liked. Fortunately, this is the age at which you can begin making increased contributions to prepare for retirement—so-called "catch-up" contributions. In 2018, those with a 401(k) are limited to a $18,500 annual contribution, but if you are 50 or older you may make an extra $6,000 catch-up contribution. For Individual Retirement Accounts (IRA), the contribution limit is $5,500, but those 50 and over may contribute an extra $1,000 catch-up amount.
When you turn 55 you become eligible to take distributions from retirement plans from former employers, but won't have to pay the hefty 10% penalty for early withdrawal. The word "former" is important here: in order to be able to take distributions without penalty, you must have permanently parted ways with that employer, whether voluntarily or otherwise. Be aware that, even though the 10% early withdrawal penalty no longer applies, these distributions would still be taxable income. The exception, of course, would be if the plan from which the distributions came was a Roth IRA.
When you turn 59 1/2 you are able to take distributions from even a current employer's retirement plan without incurring a 10% penalty with early withdrawal, but see the caution above about these payouts being taxable income.
When you turn 62 you can begin claiming Social Security benefits, so long as you have been paying into the system for the required number of years. Remember that while you can take benefits at 62, your benefit will be higher if you are able to put off retirement until what Social Security considers your full retirement age. Talk to your attorney or financial planner to assess the potential benefits and risks of beginning to take Social Security benefits at 62.
When you turn 65 you become eligible for Medicare coverage, so pay attention to information on enrollment. If you are disabled, you may qualify to receive Medicare even earlier.
When you turn 65, 66, or 67, you will have finally hit your full retirement age. The different numbers are because Social Security keeps moving the needle on what that age is. If you were born before 1937, your full retirement age is 65 (and we hope you are no longer working!). If you were born after 1960, your full retirement age is 67. For the years in between, the full retirement age increases incrementally between 65 and 67. Check out the full retirement age for your birth year.
When you turn 70 1/2 you must begin taking required minimum distributions from your retirement plans and IRAs. The rules regarding precisely when these distributions must be taken can be a little convoluted. You must take the first distribution by April 1 of the year after you turn 70 1/2. Be aware that if you don't take this distribution until after the year in which you turn 70 1/2, you will end up taking two distributions in one calendar year, which could have tax implications.
If your baby wasn't hitting his developmental milestones, you would have contacted his pediatrician. If you're not hitting your own age-related retirement milestones, and you're concerned about having enough money for retirement, contact your financial planner/advisor to make sure you're doing everything you can to feather your retirement nest. If you don't work with a financial planner/advisor, we can certainly recommend a qualified one for you. A little planning now will help you have the retirement you've always hoped for.
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