Age Related Retirement Milestones That Could Even Have You Looking Forward to Your Next Birthday



For most of us, our attitude towards our next birthday can change dramatically as we go through life. Early on, we may greatly look forward to certain birthdays.

For example, many people look forward to their 18th birthday because in most states, that marks the “age of majority” when they are legally considered an adult and can take control of many aspects of their lives. And the 21st birthday may be the most highly anticipated of all, for reasons that we will leave up to the imagination. Unfortunately, birthdays after that tend to generate increasingly less enthusiasm. However, you may not be aware that in the realm of retirement planning, you may have some birthdays coming up that you should actually be looking forward to! That’s because as the years pass, certain age milestones give you more options when it comes to building wealth and saving for retirement. The following is a list of some of the more important age milestones with regard to retirement planning.


AGE 50
Once people reach their 50th birthday, they often realize that they’ve been too focused on things like getting that next job promotion, raising the kids and paying for the big new house. Unfortunately for many, they find themselves behind when it comes to building up their retirement nest egg. Luckily, the IRS allows for certain “catch-up” contributions to allow them to put their retirement savings on a fast track. One of the most important is that in the calendar year you turn 50 and thereafter, you can contribute an extra $6,000/yr. as a salary deferral into your company 401(k) plan, thus raising the maximum contribution limit from $18,000 to $24,000. In addition, you can add an extra $1,000/yr. into your Traditional or ROTH IRA, thus raising that maximum contribution limit from $5,500 to $6,500. Both of these amounts are as of the calendar year 2017, and are likely to go even higher in the future.


AGE 55
If you leave your job in any calendar year when you turn 55 or older, there is a little known loophole in the tax law that allows you to take distributions from your company 401(k) plan with no premature 10% penalty. The money will still be taxable, but relief from the penalty can yield a big savings. This rule can come in handy especially if, for example, you are unexpectedly laid off from your job and need to tap into some of that money to pay bills.

NOTE: This rule applies only to distributions from 401(k) plans and NOT from IRAs, so you want to be particularly careful not to hastily roll over the entire 401(k) into an IRA before analyzing whether you might need to take some of that money out, because once the money is rolled to an IRA, the opportunity to take advantage of this rule is lost.


AGE 59½
This is the age at which you can take distributions from any tax qualified retirement plan, such as your 401(k) and/or IRA, without paying the 10% premature distribution penalty. This rule can often come into play if you are retiring early, say in your early 60s, and need some of that money for living expenses.

NOTE: There is a strange quirk in this rule; the distribution actually has to take place at least six months to the day after your 59th birthday in order to avoid the penalty. So you have to carefully count out 183 days past your birthday and make sure not to take the money before that date.


AGE 62
This is the age at which you can elect to take early Social Security.

NOTE: The benefit will be reduced for every year you are younger than the “Normal Retirement Age” (NRA), which is generally age 66, so if you take your benefit at age 62, it will be reduced by about one third, and will stay that way for life. So, it is important to think carefully before deciding to go ahead with this. Still, statistics show that well over half of recipients start taking their benefit at some point before their NRA.


Age 66
For most people, this is the age at which they qualify for their full “Normal Retirement Benefit” from Social Security. One thing to keep in mind is that there is no requirement that you start taking your benefit at this time. In fact, if you decide to wait, your benefit will increase by about 8% per year all the way until age 70, at which point it will max out. So if you don’t need the money right away, you may want to wait and let the benefit keep growing. When you do start taking your benefit past age 66, the increased amount will continue for life.

For most of us, our attitude towards our next birthday can change dramatically as we go through life. Early on, we may greatly look forward to certain birthdays.


AGE 70½
Since distributions from your 401(k) and/or IRAs must be included as taxable income on your return, many people wait as long as possible before doing this and choose to live on other money instead. Well, the IRS won’t let you wait forever. Starting in the year you turn 70½, the IRS forces you to begin taking a certain amount out of your 401(k)s and IRAs. These mandatory withdrawals are called “Required Minimum Distributions” (RMDs). They are based on a calculation taking into account your life expectancy. You can always take out more than your RMD, but if you take less you will be subject to a stiff 50% penalty, so it’s critically important to do the proper planning in advance for this particular issue.


As you can see, there are numerous age related milestones on the road towards good retirement planning, and it’s critically important to be aware of them and take advantage of them in order to maximize your retirement income. And who knows, depending on your situation, some of these rules could help you actually look forward to one of your upcoming birthdays for a change—or at least take a little bit of the sting out of it!

Everyone’s situation is slightly different, so feel free to give us a call if you have any specific questions about your own circumstances.