Planning for retirement typically follows a basic timeline.
If you are working, you should already begin planning for retirement.
Eventually, you will no longer be employed.
Spoiler alert ….
When you retire, you will still need to pay bills and fund your lifestyle.
According to a recent U.S. News & World Report article titled “10 Important Ages for Retirement Planning,” there are key ages and dates for planning guideposts.
What are these guidelines?
Start saving when you are young.
When you start saving into a retirement account early, you can reap greater benefits from your tax-deferred accounts.
With compounding interest, tax breaks, and employer matches; you can grow a significant nest egg.
There are limits to how much you can contribute to certain retirement accounts.
With a 401(k), the 2021 contribution limit is $19,500.
For traditional IRAs or Roth IRAs, those who work can deposit up to $6,000.
Choosing traditional IRAs and 401(k)s are beneficial when you are in your peak earning years because they can benefit your taxes while you likely are in a higher tax bracket.
Catch-up contributions begin at age 50.
At age 50, you can make additional contribution to your 401(k) or traditional IRA.
In 2021, you can make up catchup contributions up to $6,500 for a 401(k) ad $7,000 for a traditional IRA.
This allows you to save more money and receive greater tax deductions.
401(k) withdrawals could start at 55.
If you are not working at age 55, you may need to draw 401(k) retirement savings from your most recent job.
Prior to age 55, you would be required to pay a 10 percent early withdrawal penalty.
Although you can avoid the penalty at age 55, you will still owe income taxes on any withdrawals.
If you choose to roll the 401(k) account into your IRA, you must be 59½ to avoid penalties from withdrawals.
Required minimum distributions begin at age 72.
Although you can begin making withdrawals without penalties at age 59½, you do not need to take money out of the account at that time.
The year you turn 72, however, you will be required to take a certain amount of distributions each year and pay taxes on the withdrawals.
These are called Required Minimum Distributions (RMDs).
Social Security eligibility begins at age 62.
Although you can begin collecting Social Security at age 62, your benefit would be smaller each month.
If you sign up for Social Security and continue to work, part of your benefit will be withheld if your salary exceeds the annual earnings limit.
If you retire prior to full retirement age, you can only earn up to $18,960 without triggering a reduction.
Any $2 you earn above this amount will reduce your benefit by $1.
After you reach full retirement age, your benefits will be recalculated.
Medicare eligibility begins at age 65.
You can enroll for Medicare starting three months prior to when you turn 65.
The total enrollment period is seven months, so you will have four months after your birthday to complete registration.
Timing is important because premiums for Medicare Part B will increase by 10 percent for every 12-month period you failed to enroll but were eligible.
If you are delaying because you or your spouse are yet covered through a group health pan, you will need to sign up within eight months of leaving your job or health plan.
Failing to do so will trigger a penalty.
Social Security Full Retirement Age is 66 for most Baby Boomers.
Were you born in 1960 or later?
If yes, you will qualify for full retirement age at 67.
Anyone born prior to 1960 will be eligible at age 66.
If you can wait until 70, you’ll max out on Social Security.
You could increase your Social Security benefit by 8 percent each year between full retirement age and age 70 if you wait to claim Social Security.
The number is fixed and no longer increases after age 70.
RMDs begin for 401(k) and IRA retirement accounts at age 72.
Failing to fully take your RMDs from you retirement account is costly.
How large is the penalty?
It can be up to 50 percent of the amount you failed to withdraw, plus the taxes due on such amount.
To avoid this, you will need make annual withdrawals by December 31 each year after you turn 72.
The year you turn 72, your first withdrawal must be taken by April 1.
There is a lot to know and do when preparing for (let alone in) your Golden Years.
Reference: U.S. News & World Report (July 28, 2021) “10 Important Ages for Retirement Planning”