Once you turn 50, milestones for all things retirement start looming over our heads: Medicare, IRAs, ROTHs, 401(k)s or 403(b)s, and Social Security.
Becoming familiar with these rules and deadlines in preparation of your Golden Years can help you set yourself up for success and ensure that your retirement is stress-free. It can be easy to miss these deadlines if you’re not careful, and the consequences can be severe.
To stay prepared for rules and deadlines that will be hitting you in retirement, continue reading below for a list of eight major retirement milestones.
Age 50: Eligible to Make Catch-Up Contributions
Many people aren’t aware of this one, but when you turn 50, the IRS may allow you to make yearly catch-up contributions. Catch-up contributions are an elective deferral that exceeds a statutory or plan-imposed limit of a 401(k) or IRA.
For example, for the year 2023, you may contribute $22,500 into a 401(k) and $15,500 into a SIMPLE 401(k). With catch-up contributions, you can contribute another $7,500 into the 401(k) and $3,500 into the SIMPLE 401(k). For a traditional or Roth IRA, you may make a catch-up contribution of up to $1,000.[1]
Age 55: Exception for Early Withdrawal Penalty
Normally, withdrawing from your workplace retirement plan early will result in a penalty of 10%. There are exceptions to this rule, and the Rule of 55 is one such example.
If you leave or lose a job the calendar year you turn 55, you may withdraw funds from that job’s 401(k) or 403(b) plan without paying the standard penalty. You must still pay taxes on your withdrawals, though[2].
Age 59 ½: No More Early Withdrawal Penalty
59 ½ is one of the most major milestones for retirement. After turning 59 ½, you can generally start withdrawing money from employer-sponsored retirement plans and IRAs without the aforementioned early withdrawal penalty of 10%. However, regular income tax may still apply to withdrawals. Please note that there are exceptions to this rule, so be sure to discuss your retirement situation with a professional.[3]
Age 62: Eligible to Start Claiming Social Security
Once you turn 62, you’re eligible to start receiving Social Security retirement benefits, should you choose to do so. If you hold off, your monthly check will increase for every year you wait (maxing out once you reach 70).
Conversely, however, if you start receiving Social Security benefits before your full retirement age – when you can claim 100% of your benefits – your monthly payment will be permanently reduced.
Have questions? Consult with a financial professional to work out the best age to start collecting Social Security benefits.
Age 65: Eligible to Enroll in Medicare
At 65, most Americans become eligible for Medicare. Medicare is the federal government’s health insurance program for retirees that covers a moderate amount of physician visits, hospital care, and other medical services. If you’ve already started receiving Social Security benefits at this age, you’ll be automatically enrolled in both Parts A and B of Medicare.
If you haven’t started receiving Social Security yet, though, you’ll have to apply yourself. Your initial enrollment period lasts for seven months after you turn 65, and if you miss this window, you may suffer higher premiums for the rest of your life.[4]
With multiple parts of Medicare existing, enrollment and understanding the benefits of each can be overwhelming, so consider seeking professional advice.
Age 66-67: Full Retirement
Once you turn 62, you can start receiving your Social Security benefits. However, if you wait until your full retirement age (FRA), you receive the full standard benefit amount. Your full retirement age depends on the year you were born.[5]
For example, those born between 1943 and 1954 have a full retirement age of 66. Those born between 1955 and 1959 have a full retirement age of 66, plus two months for each year after 1954. This can be confusing, so if you need more information, visit the Social Security Administration’s website for help.
Age 70: Maximized Social Security Benefits
If you postpone collecting Social Security benefits beyond your full retirement age (up to 70 years old), you accumulate delayed retirement credits, meaning your monthly benefit amount will be larger. If you hold off until 70 – the longest you can wait – your monthly benefit will be at its highest possible amount. There’s no financial advantage to waiting beyond age 70.
Age 73: Required Minimum Distributions (RMDs) Begin
Part of the appeal behind contributing to a 401(k) during our working years is that we want to lessen our tax burden through our contributions. However, our contributions don’t grow tax free indefinitely.
You’ll need to start making taxable withdrawals from your account by April 1st of the year following the age set for RMDs to begin. Failing to do so could result in a penalty of up to 25% on the amount you should have withdrawn.[6]
Everyone is excited to go into retirement, that’s true, but there’s value in preparing for the significant deadlines you’ll run into once you’re there. If you know anyone close to retiring, consider sharing this information with them. Otherwise, try to keep it in mind down the road!
This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.
Information provided by Valorem Financial and written in collaboration with Oechsli, a non-affiliate of Cetera Advisor Networks, LLC and CWM, LLC.
[1] “Retirement Topics – Catch-Up Contributions.” IRS, 29 Aug. 2023, www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-catch-up-contributions. Accessed 5 Sept. 2023.
[2] “Topic No. 558, Additional Tax on Early Distributions From Retirement Plans Other Than IRAs.” IRS, 6 Aug. 2023, www.irs.gov/taxtopics/tc558. Accessed 5 Sept. 2023.
[3] “Retirement Topics – Exceptions to Tax on Early Distributions.” IRS, 29 Aug. 2023, www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions. Accessed 5 Sept. 2023.
[4] “How to enroll in Medicare if you missed your Initial Enrollment Period.” Medicare Interactive, n.d., https://www.medicareinteractive.org/get-answers/medicare-health-coverage-options/original-medicare-enrollment/how-to-enroll-in-medicare-if-you-missed-your-initial-enrollment-period. Accessed 4 Oct. 2023.
[5] “Starting Your Retirement Benefits Early.” Social Security Administration, 16 Jun. 2020, www.ssa.gov/benefits/retirement/planner/agereduction.html. Accessed 5 Sept. 2023.
[6] “Retirement Plan and IRA Required Minimum Distributions FAQs.” IRS, 14 Mar. 2023, irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs. Accessed 5 Sept. 2023.
