Important Dates to Remember as You Approach Retirement

If you’re nearing retirement, there are so many factors to consider. For example, where you will live, how you’ll fill up your free time, and how you’ll determine your sense of purpose are decisions that likely rank high on your to-do list. After all, you want to enjoy retirement to its fullest!

While your focus may zero in on big-picture items, you should also remain aware of age-related milestones as you plan for retirement. These events can significantly impact your finances and your ability to live out your retirement dreams.

Age 50: take advantage of catch-up contributions

Once you turn 50, the IRS allows you to make annual “catch-up contributions”: additional contributions you can make above standard annual limits to your 401(k)s and IRAs.

This feature is offered to encourage savings and help ease the financial burden of retirement. Unfortunately, very few people make the most of this benefit; according to Vanguard, only 15% of eligible 401(k) participants take advantage of catch-up contributions when offered. These low rates are likely due to affordability, as almost all plans (98%) permit catch-up contributions.

If it makes sense for your overall plan and you can afford to make catch-up contributions, you should take advantage of this benefit as tax-deferred growth can significantly boost your retirement savings. For example, if you contribute an additional $625 per month (or $7,500 per year) to your 401(k) starting from age 50 until the age of 65, you would accumulate over $179,000 based on a 6% return.

As of 2023, you can contribute $22,500 to a 401(k) and $15,500 to a SIMPLE 401(k). With catch-up contributions, you can kick in an extra $7,500 for the former and $3,500 for the latter. Roth & traditional IRA contributions ring in at $6,500 for 2023, and with catch-up contributions, you can kick in an extra $1,000.

Age 55: know the Rule of 55

The rule of 55 is an IRS provision that allows workers who leave their job to withdraw funds from their employer-sponsored retirement account penalty-free (while still paying income taxes). Under the terms of this rule, you must be at least 55 years old but younger than 59.5 when you leave your job and can only access funds from your current/most recent employer’s retirement plan. Qualified public safety workers such as policemen, EMTs, and firefighters can take advantage of this rule a little earlier, starting at age 50. How you left your job—whether you quit, were fired, or laid off—doesn’t matter as it pertains to this provision.

Age 59½: you can withdraw from your 401(k)

At age 59½, you can begin withdrawing money from your 401(k) and IRA accounts without incurring a 10% early withdrawal penalty. That said, if you don’t retire at this age, it’s best to leave your savings alone: especially since each withdrawal is still subject to federal income tax. Depending on where you reside, you are also sometimes subject to state taxes on withdrawals.

Age 62: you qualify for Social Security benefits

You can begin collecting Social Security at age 62. However, choosing to receive benefits before reaching full retirement age (the age at which you’re entitled to receive100% of your benefits) means your monthly benefit will face a permanent reduction. The current full retirement age for those born after 1959 is 67.

More specifically, Social Security benefits increase by approximately 7% each year between 62 and your full retirement age. Thereafter, this increase rises to approximately 8% each year between your full retirement age and age 70 (the age in which you’d maximize your Social Security benefits).

To illustrate, let’s assume the full amount of your Social Security benefit is $1,000 a month: the amount you’d receive if you wait until your full retirement age.

If you claim benefits at age 62, your benefit will decrease by roughly 30% to $700: meaning you’d miss out on $3,600 a year! Multiply that by five years (when you’d reach full retirement age) and that’s $18,000—per spouse! Alternatively, if you wait until 70, your monthly benefit would shake out to be about $1,266 a month.

Three months before age 65: Medicare enrollment begins

You generally qualify for full Medicare benefits upon turning 65—earlier if you have qualifying disabilities—based on your (or your spouse’s) employment record.

Most people have a seven-month Medicare sign-up enrollment period, with this window beginning three months before you turn 65 and ending three months after your birthday month.

A failure to enroll in Medicare during the specified enrollment period can increase your monthly premiums (despite what some may believe,Medicare isn’t free). Click here to read all about costly Medicare mistakes you should avoid.

Age 73: RMDs

If you’re saving money in a 401(k) or traditional IRA for your retirement, you probably know your taxes are perennially deferred on these accounts—likely over many decades. Unfortunately, the government will inevitably look to collect its fair share of taxes at one point or another. For many retirees, this time will arrive when required minimum distributions (RMDs) eventually hit their plans. Simply put, RMDs are the minimum amount of money one must withdraw from specific tax-deferred retirement accounts beginning at age 73 (as of January 1, 2023). Starting in 2033, this stipulation will climb to age 75.

In sum: key milestone dates to remember

As you can see, it’s critical to familiarize yourself with these age-related milestones as they impact when you can retire, use your retirement funds without penalty, and enroll for various government benefits.

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Vision Retirement is an independent registered advisor (RIA) firm headquartered in Ridgewood, New Jersey. Launched in 2006 to better help people prepare for retirement and feel more confident in their decision-making, our firm’s mission is to provide clients with clarity and guidance so they can enjoy a comfortable and stress-free retirement. To schedule a no-obligation consultation with one of our financial advisors, please click here.

Disclosures:
This document is a summary only and is not intended to provide specific advice or recommendations for any individual or business.