Key Retirement Planning Milestones

Retirement planning involves several key milestones that dictate eligibility, benefits, and penalties. Let’s take a look at some of the key age thresholds to keep in mind as you plan for your financial future.

Age 50 Catch-up Contributions

Once you turn 50, you can start making “catch-up” contributions to your IRA and

401(k), allowing you to set aside more money each year than you could previously. The IRS allows you to contribute an additional $1,000 to your IRA and an additional $7,500 to your employer-provided 401(k). Contribution limits for all retirement plans can be found here.

Per the SECURE 2.0 Act, if you earn more than $145,000 per year and wish to make catch-up contributions to a 401(k), those contributions must be made on a Roth (or after-tax) basis starting in 2024. If your earnings exceed $145,000 and your employer doesn’t offer a Roth option, you cannot make catch-up contributions to your 401(k).

Additionally, if you are between the ages of 60 and 63, you will receive access to a special catch-up contribution. This contribution will be capped at the greater of $10,000 or 150% of the standard catch-up contribution for 2024. Once you reach age 64, the regular catch-up contribution limit applies.

Age 55 Early Withdrawal Penalty Exemption

If you leave your job (whether by quitting, getting fired, or getting laid off) during or after the year you turn 55, you can take distributions from your 401(k) without incurring a 10% early withdrawal penalty. This is known as the “Rule of 55.” Bear in mind that you will still need to pay income taxes on these withdrawals.

Age 59½ Penalty-Free Withdrawals

You can begin taking money out of your retirement accounts without incurring the 10% early withdrawal penalty after turning 59½. As before, regular income taxes will still apply to any distributions you make from tax-deferred accounts like traditional IRAs and 401(k)s.

Age 60 Eligibility for Survivor’s Benefits

If you were married for at least 10 years to a spouse or ex-spouse who has since passed away, you can qualify for Social Security survivor’s benefits starting at age 60, assuming you don’t remarry before then.

In addition, if you’ve worked for at least 40 quarters (the equivalent of 10 years), you can opt to receive benefits based either on your own work history or that of your deceased spouse or ex-spouse. You may also have the option to combine these benefits in some way, which could lead to higher payouts.

Age 62 Early Social Security Benefits

Unless you qualify for survivor benefits, 62 is the earliest age you can start receiving Social Security retirement benefits. But just because you can submit your first claim at this point doesn’t necessarily mean you should — it may be more advantageous for you to delay benefits. For each year you delay claiming benefits from age 62 to 70, your annual payout increases by 8 percent, meaning you could be leaving money on the table by opting to receive benefits as soon as possible.

Age 65 Medicare Eligibility & Penalty-Free HSA Withdrawals

Most people become eligible for Medicare starting at age 65. If you already receive Social Security benefits, you’ll automatically be enrolled in Medicare Part A, which primarily covers hospital expenses. If you decide to claim Social Security benefits later, you have a seven-month window to enroll in Medicare: starting three months before your 65th birthday and ending three months after. If you miss this period, your premiums could rise by 10% for every year you delay enrollment.

Upon becoming eligible for Medicare, consider additional coverages like prescription drugs Part D       and Medigap for out-of-pocket costs. Remember, Medicare doesn’t cover long-term care expenses, and given the increasing costs of long-term care, planning for these expenses is paramount.

Also starting at 65, you can withdraw funds from your Health Savings Account HSA for any reason — even for non-medical expenses — without incurring a penalty.

Withdrawals for non-qualifying expenses are subject to income taxes.

Age 66-67 Full Retirement Age for Social Security

Full retirement age for Social Security determines when you can receive your full benefit amount, also called the primary insurance amount. This age depends on your birth year:

  • For those born between 1943 1954, your full retirement age is 66
  • For those born between 1955 1959, your full retirement age is between 66 and 67
  • For those born in 1960 or after, your full retirement age is 67

Claiming before reaching FRA results in reduced benefits, while postponing benefits beyond your FRA can increase the size of your monthly payout.

Age 70 Maximum Social Security Benefits

As stated previously, you can increase the size of your benefit up to 32% by opting not to receive payments until this age. There is no advantage to delaying Social Security benefits beyond the age of 70.

Age 73 Required Minimum Distributions Start

For most retirement plans — including traditional IRAs, 401(k)s, and other tax-deferred accounts — you must start taking minimum distributions each year after turning 73. Failing to take these distributions can result in a hefty penalty up to 25% of the shortfall. For instance, if you withdrew $4,000 less than your required minimum, you could incur a $1,000 penalty. By 2033, the starting age for RMDs will be 75.

These are general guidelines, and individual circumstances might affect one’s retirement planning. Always consider consulting a financial planner or advisor to understand how these milestones could impact your specific financial situation.

This material is intended for informational/educational purposes only and should not be construed as tax, legal or investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Certain sections of this material may contain forward-looking statements. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is no guarantee of future results. Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption of any kind. Please consult with your financial professional and/or a legal or tax professional regarding your specific situation and before making any investing decisions.

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Maximizing your Social Security Benefits assumes foreknowledge of your date of death. If as an example you wait to claim a higher monthly benefit amount but predecease your average life expectancy, it would have been better to claim your benefits at an earlier age with reduced benefits.

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