Key Retirement Ages to Know
As you approach retirement, it can become confusing to keep track of all the milestone ages and the actions you should take. Yet staying aware of important retirement ages is essential to effective retirement planning, which is why we’ve put together a list of six key ages for you to know below.
Age 50: Catch-Up Contributions
Once you hit age 50, you’re eligible to make catch-up contributions to your retirement accounts on top of your regular contribution limits.
The IRS allows contributions in the following amounts for 2020 and 2021:
Up to $19,500 for 401(k) and 403(b) plans, plus a $6,500 catchup contribution
Up to $13,500 for SIMPLE IRAs and SIMPLE 401(k)s, plus a $3,000 catchup contribution
Up to $6,000 for traditional or Roth IRAs, plus a $1,000 catchup contribution
Age 55½: Penalty-Free Withdrawals for Early Retirees
Usually, withdrawing funds from your retirement accounts before you reach age 59½ results in a 10% penalty on top of the taxes you would pay.
However, the Rule of 55 means the IRS won’t penalize you for withdrawing funds if you are fired, laid off, or quit your job.
The Rule of 55 applies to employer-provided plans, such as your 401(k), and it applies only to your current one, not any plans from previous employers.
If you think you will begin withdrawing funds before age 59½, you may want to consider rolling over the account balances from your previous plans into your current one.
Remember that the longer you wait until you access your retirement accounts, the more time your contributions have to compound. If you can work, that may be more beneficial to your long-term financial situation than taking advantage of the Rule of 55.
Age 59½: Penalty-Free Withdrawals for Everyone
Once you reach this age, you’re able to take distributions from retirement accounts such as 401(k)s and traditional IRAs without being subject to the 10% early withdrawal penalty.
Of course, you’ll still owe income taxes on those funds unless you have a Roth account.
Ages 62-70: Social Security Benefits Begin
The age at which you can start receiving Social Security retirement benefits is a bit complicated. You become eligible for benefits at age 62; however, your monthly amount will be less than had you waited until what’s called “full retirement age.”
Your full retirement age depends on the year of birth:
1943-1954: Age 66
1955: Age 66 and 2 months
1956: Age 66 and 4 months
1957: Age 66 and 6 months
1958: Age 66 and 8 months
1959: Age 66 and 10 months
1960 or later: Age 67
Remember that just because you’re eligible to start receiving Social Security benefits doesn’t mean you should. The longer you put off those benefits, the more you will receive once you start drawing on them.
The Social Security Administration will increase your benefit amount for each year you wait up to age 70. So, if you are financially and physically in good health, postponing Social Security may be worth the wait.
Our Greenwood Village, Colorado financial planning firm collaborates with clients to determine the age they should begin taking benefits based on their overall financial situation, immediate needs, and long-term goals.
If you feel unsure about the age you should begin taking Social Security, consider talking with a fee-only, fiduciary financial advisor with expertise in retirement planning.
Age 65: Medicare Eligibility
With few exceptions, you will need to sign up for Medicare, the federal government’s health insurance program for retirees, at age 65.
When you enroll in Medicare, you have the option of choosing from Original Medicare or a Medicare Advantage plan. The federal government administers Original Medicare, which provides hospital coverage (Part A) and medical coverage (Part B).
Private insurers provide Medicare Advantage plans, and you can study the various plans to pick one that meets your needs.
There is also Part D, which is an additional stand-alone plan for prescription drug coverage.
Medicare is complex, so taking your time to understand the options is essential. MedicareInteractive.org is a resource that can help answer your questions.
Another important note for the age-65 milestone: This is the year that you can begin taking penalty-free withdrawals from your health savings account (HSA) for nonmedical reasons.
Age 72: Required Minimum Distributions
A required minimum distribution (RMD) is the minimum amount you are required by the IRS to withdraw from retirement accounts such as:
Employer-sponsored retirement plans (e.g., 401(k), 403(b), and 457 plans)
Traditional IRAs and IRA-based plans, such as SEP IRAs and SIMPLE IRAs
Roth 401(k) accounts (but not Roth IRAs while the owner is alive)
It’s important to make sure you take your RMD each year. The IRS will tax the amount you didn’t withdraw at 50%. Check out this RMD question-and-answer from the IRS to learn more about deadlines, taxes, and how RMDs are calculated.
Keep Track of Key Retirement Ages
The age of retirement is rarely cut and dry, and the age you decide to retire depends on your unique situation.
As you approach your retirement age, be mindful of the milestone dates. These dates include the age at which you can start making extra contributions to your retirement accounts, the age you can begin taking penalty-free withdrawals, and the ages at which you can receive Social Security and Medicare benefits.
Keeping track of these dates is essential for making sure you don’t miss a vital requirement—not to mention getting the most out of your retirement.
Discuss your situation with a fee-only financial advisor. Schedule a complimentary discovery call.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.
This commentary reflects the personal opinions, viewpoints and analyses of the Stordahl Capital Management, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Stordahl Capital Management, Inc. or performance returns of any Stordahl Capital Management, Inc. Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this piece constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Accessing websites through links directs you away from our website. Stordahl Capital Management is not responsible for errors or omissions in the material on third party websites and does not necessarily approve of or endorse the information provided. Users who gain access to third party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from the use of those websites. Please note that trading instructions through email, fax or voicemail will not be taken. Your identity and timely retrieval of instructions cannot be guaranteed. Stordahl Capital Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.