As you approach your 50s, you should be mindful of significant retirement milestones that are associated with your age. Below is our guide to the dates and associated rules you should plan for in retirement.
Age 50: Catch-up Contributions
Once you turn 50, you can make catch-up contributions to your tax-deferred retirement accounts. Catch-up contributions are an excellent way for pre-retirees who are behind on their retirement savings to put more money away.
The rule also benefits high earners, who can save money on taxes by contributing the maximum plus the catch-up.
For 2018, if you have a 401(k), 403(b), or 457 plan, you can contribute an extra $6,000 per year. This increases the total amount you can save in a tax-deferred account from $18,000 to $24,000.
If you have an IRA or Roth IRA, you can contribute an extra $1,000, bringing the total from $5,500 to $6,500. If you have a Simple IRA, you are allowed to add an extra $3,000.
Age 55 and 59.5: Penalty-Free Retirement Withdrawals
Beginning at age 55, you may request a distribution from your employer’s qualified retirement plan and avoid the 10% early withdrawal penalty (you will still have to pay ordinary income tax on the distribution). To be eligible for this penalty-free distribution, you will need to have separated from service from your job and left the tax-deferred account with your employer (don’t roll it over!).
Once you turn 59.5, you can take penalty-free distributions from any plan, including IRAs.
Tip: If you want to retire early (before 59.5), do not roll your employer’s tax-deferred account to an IRA. You will have to pay the early withdrawal penalty if you do.
Age 62: Reduced Social Security Benefits
Once you turn 62, you can start receiving Social Security benefits—but they will be less than if you wait until your full retirement age (see below). If you collect right on your 62nd birthday, your benefit will be reduced by 25%! In addition, if you are still working and collect your benefit, you will be penalized if your earnings exceed $17,040.
Age 65: Start Date for Medicare
Once you turn 65, you are eligible for Medicare and a Medicare supplement plan. Most people don’t need a reminder for this, as about 12 months before your 65nd birthday, your mailbox becomes overloaded with Medicare offers. 🙂
Age 66–67: Full Retirement Age
Depending on your year of birth, when you turn 66 or 67, you hit full retirement age (FRA). This is the age you’re are entitled to receive your full benefit from Social Security. You also will not be penalized if you continue to work and collect Social Security.
Age 70: Maximum Social Security Benefit
On your 70th birthday, the Social Security benefit amount you are eligible for stops increasing.
Tip: It makes no sense to delay your Social Security benefit past age 70. True story: I met a guy who was 74 and had yet to collect his Social Security benefit. He had lost out on four years of income!
Age 70.5: Required Minimum Distributions
Once your turn age 70.5, you must take mandatory withdrawals from your tax-deferred retirement accounts (Roth IRAs are exempt). These withdrawals are referred to as required minimum distributions (RMDs). The withdrawals count as income, and you will be taxed.
If you fail to take an RMD, you will be penalized 50% of what your distribution should have been. It is one of the harshest penalties the IRS has.
Tip: The one exception to the RMD rule is if you are working, still have your money in your employer plan, and don’t own more than 5% of the company—then you will not have to take a distribution.