Most Americans still think about retirement as something that will happen around age 65 – give or take a few years.
That’s when you reach the traditional milestones: Medicare kicks in, and Social Security is available should you need or want to start making withdrawals.
But there are other deadlines – both before and after your mid-60s – that are important to keep in mind if you want to make the most of your investments, avoid government penalties and save on taxes. Here’s a quick checklist:
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Age 50: If you got a late start with your retirement savings or always wished you’d socked away more money, this is the time to do it. With “catch-up” contributions, workers 50 and older can start saving extra money and defer taxes on as much as $24,000 in 401(k) and 403(b) plans in 2017. (That’s the maximum $18,000 contribution plus a $6,000 “catch-up.”) Those with traditional or Roth IRAs can contribute an extra $1,000 to the regular limit of $5,500.
Age 55: If you’re 55 or older and you retire, quit or get laid off, you can take a withdrawal from your 401(k) in that same calendar year without having to pay the 10% early withdrawal penalty -- but only from the account associated with the job you most recently left. (Public safety employees can avoid the penalty if they leave a job in the year they turn 50 or later.)
Age 59½: The 10% early withdrawal penalty on retirement account distributions goes away once you reach 59½. Keep in mind, though, that you'll still have to pay income tax on traditional 401(k) and IRA withdrawals.
Age 62: This is a big year! You’re finally eligible to take Social Security – and many Americans do begin payments at the age of 62. But if you can hold off awhile, it’s probably wise. Your payments could be reduced permanently by around 30% if you sign up this early. Also, if you work and collect Social Security benefits at the same time, some or all of your payments could be temporarily withheld.
Age 65: You’ll become eligible for Medicare at 65 and can sign up as early as three months before your 65th birthday. Get on it! Unlike Social Security, there’s a downside if you don’t sign up on time: Your Medicare Part B and D premiums could permanently increase, and you could be denied supplemental coverage. If you expect to keep working, talk to someone in human resources about how this affects your group health plan.
Age 66: First-wave Baby Boomers, rejoice! If you were born between 1943 and 1954, you’re eligible to take full Social Security payments when you turn 66. (Those born between 1955 and 1959 will have to wait a few months longer.) Just remember: If you postpone collecting your payments, they’ll continue to increase by 8% every year you delay until age 70. (Talk to your financial adviser about whether waiting is good for you when it comes to tax consequences.)
Age 67: If you were born in 1960 or later, this is your year. Your eligibility age for full Social Security payments is 67.
Age 70: Time’s up: There’s no benefit in waiting to collect your Social Security payments past age 70, so enjoy!
Age 70½: Distributions from traditional IRAs and 401(k) accounts become required after age 70½, and you must pay income tax on each withdrawal. These are the dreaded “required minimum distributions” (RMDs) you no doubt have heard about from friends and financial experts. If you fail to withdraw the correct amount, the tax penalty is steep: 50% of the amount you should have withdrawn. So talk to your adviser about determining what the correct amount is, and while you’re at it, get strategies for reinvesting and minimizing taxes.
Whew! That’s more than 20 years you’ll need to keep track of if you want to make the most of your savings and benefits. But missing or dismissing one of these critical milestones could potentially impact tens of thousands of your hard-earned dollars – or more.
Keep this list handy - and stay on top of any policy changes or updates – while you’re making your plans for a long, happy retirement.
Kim Franke-Folstad contributed to this article.
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