Think quick! What’s the most important age to remember for retirement?
Sixty-five, isn’t it?
Well, not exactly. If your goal is to have a peaceful and financially secure retirement, you will have to remember more than just one date. Eight, to be exact. Here they are, in order.
Do Not Miss These Dates!
If you have a 401(k), 403(b) or similar plan at work, you can begin to make catch up contributions. That means you can tuck away an additional $6,000 per year into your 401(k) and $1,000 into your IRA during 2017. Whether you have skimped on the contributions during your working career or not, this is a fantastic opportunity to boost your retirement savings and optimize your taxes. Remember that the amount of the permissible catch-up contribution can change, so be sure to check the limit every year.
Early withdrawals from the 401(k) plans become available penalty-free if you choose to retire now. The key here is that you must have left the employment of the company that sponsors your retirement plan. If that is the case for you, be sure to investigate your options for healthcare insurance. Some companies offer a group insurance plan for retirees, but most don’t. Research your costs under extended COBRA coverage, or purchase your own insurance policy that will bridge the gap between employee-covered healthcare insurance and Medicare.
Age 59 1/2
Normal withdrawals from the 401(k) account and the IRA become available without penalty. Remember that those withdrawals are subject to income tax.
Earliest age to begin taking Social Security payments. Keep in mind that if you opt to do this, your benefit amount will be lower than it would have been had you waited until your full retirement age. If you continue to work (whether full-time or part-time), your benefits may be suspended or reduced until you reach full retirement age.
Sign up for Medicare. In fact, it is best to do this three months before your big birthday to ensure that benefits can begin right at 65. Be sure not to miss this deadline. If you do not sign up on time, your risk getting a permanent increase to your premiums. This is also a good time to look at getting a Medigap policy to help you cover copayments and deductibles that are not paid for by Medicare.
Full retirement age for Social Security benefits depends on your birth year. For those born between 1943 and 1954, 66 is the magic number. It increases gradually in monthly increments, and for those born in 1960 the full retirement age is 67. Remember that if you opt to delay the start of the Social Security benefits, they will continue to increase for every year you wait.
Social Security benefits stop increasing, so there is no more financial incentive to delay the start of payments.
Age 70 1/2
Required minimum distributions kick in for 401(k), IRA and other retirement accounts. If you are still working, you will no longer get a tax break for making contributions.
Here Is What This Means for You
What if your handy planner does not go out to your 70th birthday?
We all have full lives, which means that sometimes we struggle to recall what we had for breakfast yesterday or where we left those glasses. Therefore, we need tools to help us remember these important dates. I recommend making a checklist to keep with your important documents and creating a routine that encourages you to look at the list every year as you get closer to these important dates. Perhaps you can even make it a part of your birthday celebration! Alternatively, New Year’s Day or some other holiday can be chosen as a time to consult the list. All that matters is that you remember to do this consistently.
Notice that not all of these dates spell a need for immediate action. In most cases, they are important because you now have options that weren’t previously available.
For example, 65 is an “actionable” birthday: file for your Medicare benefits now, or pay the price for missing the deadline for years to come. Other dates can be simply treated as reminders, and your personal financial situation might allow you to take no action at all. An example would be the option to file early for the Social Security benefits. You can do it if you need the security of the monthly payment, but if you are able to wait until your full retirement age or beyond, you will be rewarded with a larger monthly payment.
Finally, always consult with a CPA or a financial planner because many of these decisions are irreversible and have long-lasting financial consequences.