Financial Planning

7 Key Milestone Ages Toward Your Retirement

Certain birthdays are more important than others on the road to retirement, and they may arrive sooner than you think.

Many investors look ahead to certain events in their lives as they plan their retirements. These are mostly age-based milestones, the times when investors make financial decisions that will affect their retirement for better or for worse.

Generally speaking, age-based milestones happen during specific years in your life. People often use a “retirement date” as they plan their retirements and often look at age-based milestones to determine when they can retire. But there are hazards, and investors looking to retire need to hammer out a plan to ensure they can maximize their retirement benefits.

Milestone #1: Age 55

One of the earlier age-based milestones in retirement planning comes at age 55. That’s the age when many retirement plans, including 401(k)s and defined and government pension plans, allow withdrawals without imposing a premature tax penalty — usually 10%. This can come in handy, especially for individuals who want to retire early. That’s more than enough reason to make 55 a milestone as you plan your retirement.

Milestone #2: Age 59½

Another milestone, one of the most popular ones for retirement planning, comes when you reach 59½ years old. That’s when you can take withdrawals from IRAs or qualified money without facing a premature penalty or an extra tax from the IRS. While often overlooked, when investors reach this age, many plans allow for an in-service rollover from a 401(k) plan to an IRA even while you continue to work and contribute to the 401(k). That’s important, especially as 401(k)s are increasingly offering limited choices and options. This is a huge milestone for many investors, giving people the ability to retire if they have saved enough when reaching this age.

Milestone #3: Age 62

As we enter our 60s, we face additional milestones. Starting at age 62, we can begin taking early Social Security payments. Many investors use this age as their retirement date when they should be relying on other milestones instead. While many of us want to take Social Security early, there are some drawbacks. Taking Social Security early could lead to a 25% reduction in lifetime benefits. Income restrictions also come into play when you take Social Security early. These pitfalls serve as important reminders on why it’s important to rely on an experienced and knowledgeable financial adviser as you plan your retirement.

Milestone #4: Age 65

Another milestone comes at age 65, when most of us are eligible for Medicare, which is increasingly important as health care ranks as one of the top concerns and expenses for many retirees. Even if you are planning to collect Social Security later, you should file for Medicare three months before you turn 65. Many traditional defined benefit plans, usually offered through employers, set 65 as the normal retirement date, making this an important milestone for many of us as we plan our retirements.

Milestone #5: Full Retirement Age

Reaching the age to collect full Social Security is another milestone. For those of us born between 1943-1954, the full Social Security age is when we reach 66. Those of us born in the latter half of the 1950s reach the age to collect full Social Security between our 66th and 67th birthdays. Those of us born in 1960 or after have to wait until we are 67 to collect full Social Security. There are no income restrictions if we take Social Security when we reach that age to fully collect it and, usually, there’s a dramatic increase in income compared with starting to collect when you reach 62.

Milestone #6: Age 70

Another milestone comes when you reach 70. If you hold off until you hit 70 to start collecting Social Security, you usually see an 8% increase in your benefits for every year past your full retirement age. There’s no benefit to waiting until after 70 to start collecting Social Security.

Milestone #7: Age 70½

The last age-based milestone comes at 70½, which is the required minimum distribution age. This when you are required to take an annual withdrawal from your IRA or qualified accounts whether you need the income or not. If you are still working, you are not required to take withdrawals from your current employer plan.

Of course, there are plenty of other life events that affect your finances and your retirement: marriage, divorce, disability, death, kids going to college, health care and medical expenses, for example. If mishandled, these kinds of events can affect your retirement just as much as the age-based milestones.

All of these milestones and events can often change and derail retirement plans. They also highlight why you need to consult an experienced and knowledgeable financial adviser to help you craft a retirement strategy, no matter which milestones you are focusing on.

Bill Smith is CEO of W.A. Smith Financial Group and Great Lakes Retirement Inc., as well as an Investment Adviser Representative and insurance professional. His firms focus on retirement planning and wealth management.

Kevin Derby contributed to this article.

About the Author

Bill Smith, RFC

CEO, W.A. Smith Financial Group

Bill Smith is the host of the television and radio show "Retirement Solutions." Author of "Knock Out Your Retirement Income Worries Forever." He is the CEO of W.A. Smith Financial Group and Great Lakes Retirement Inc. His firms specialize in retirement income planning, wealth management, wealth preservation and estate planning.

Most Popular

Why Are Gas Prices Still Going Up?
spending

Why Are Gas Prices Still Going Up?

The cost of a gallon of gas is at an all-time high. What’s driving the surge and will gas prices go down anytime soon?
May 23, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
Education is Key: 3 Financial Lessons for Retirees Nearing Retirement
retirement planning

Education is Key: 3 Financial Lessons for Retirees Nearing Retirement

When it comes to retirement planning, educating yourself can keep you from making big mistakes. Here are three key lessons that everyone preparing for…
May 24, 2022

Recommended

4 Keys to Planning Your Hard-Earned Retirement Income Distributions
retirement planning

4 Keys to Planning Your Hard-Earned Retirement Income Distributions

The fear of running out of money in retirement is understandable. When you have a well-thought-out retirement income plan, you can quit worrying.
May 27, 2022
Short-Term Insurance Plans' Good, Bad and Ugly
retirement

Short-Term Insurance Plans' Good, Bad and Ugly

You'll need a squinty-eyed analysis to gauge the value of short-term care insurance plans and if they're right for you.
May 26, 2022
This Couple Tackles Love and Money as a Team
Getting Married

This Couple Tackles Love and Money as a Team

Fyooz Financial, the husband and wife team of Dan and Natalie Slagle, have carved out a niche advising other couples with the money questions that com…
May 24, 2022
2022's Best Mutual Funds in 401(k) Retirement Plans
mutual funds

2022's Best Mutual Funds in 401(k) Retirement Plans

A key to smart retirement saving: spreading your portfolio across a few of the best mutual funds in your 401(k) plan. Here are the 29 top options avai…
May 24, 2022