Age, as the saying goes, is more than just a number. That’s especially true when it comes to planning your retirement. As you grow older, taking steps at certain milestones could affect your finances and your retirement plans.
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Age, as the saying goes, is more than just a number. That’s especially true when it comes to planning your retirement — as you grow older, taking steps at certain milestones could affect your finances and your retirement plans.
Some of these milestones are obligations and some are opportunities. What they all have in common is they can have a big impact on your retirement plans.
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You may be asking yourself: at what ages can I boost my retirement savings, take social security benefits, start to take required minimum distributions, or skip the federal tax penalty for withdrawing funds? We have outlined 8 important milestones during your retirement journey between ages 50 to 73 on a variety of important topics.
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For example, age 50: Catch up on retirement contributions.
This is when the IRS lets you contribute more than the standard annual limit for 401(k)s and IRAs.
Age 55: Consider boosting your Health Savings Account. You’re able to start making catch up contributions to your health savings account or HSA, making it a valuable tool as you plan for retirement.
Age 59 and a half: Skip the federal tax penalty on withdrawals. If you have a Roth IRA that’s been open for at least five years, your distributions of earnings are now tax-free. You can also withdraw money from an IRA, 401(k), or 403(b) without penalties or limitations.
Age 62: Take a look at your Social Security benefits. This is when you have your first opportunity to start taking benefits.
Age 65: Enroll in Medicare. Don’t miss your window of opportunity. Otherwise, Medicare part B and prescription drug coverage, part D, may be more expensive.
Ages 66 to 67: This is when you reach full retirement age for Social Security. Determine if it’s a good time to start taking your benefits.
Age 70: File for Social Security if you haven’t.
Age 73 and older: Enjoy the fruits of your labor.
If you made pre-tax contributions to a 401(k) during your working years, you’re required to start taking taxable withdrawals at this point.
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Our USAA Retirement Income Specialists can help you make important decisions such as claiming social security, developing an efficient RMD strategy and see how all these key dates fit into your retirement income plan.
Call a USAA Retirement Income Specialist at 800-531-3392. Description of visual information: [Life insurance and annuities provided by USAA Life Insurance Company, San Antonio, TX and in New York by USAA Life Insurance Company of New York, Highland Falls, NY. All insurance products are subject to state availability, issue limitations and contractual terms and conditions. Each company has sole financial responsibility for its own products.
The contents of this document are not intended to be, and are not, legal or tax advice. The applicable tax law is complex, the penalties for non-compliance are severe, and the applicable tax law of your state may differ from federal tax law. Therefore, you should consult your tax and legal advisers regarding your specific situation.
Money not previously taxed is taxed as income when paid. Withdrawals before age 59½ may be subject to a 10% federal tax penalty. 6403591] End of description.
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Some of these key dates represent opportunities, like the ability to contribute more toward your retirement plans starting at age 50. Others are obligations, like the requirement to start taking retirement distributions at age 73 for those born from 1951 to 1959. Being aware of these dates might help you avoid pitfalls as you plan your retirement.
These dates can have a big impact on your retirement and sometimes can carry stiff penalties for non-compliance. So, it’s important to work with your financial planner/advisor and tax/legal experts as you approach retirement.
Here are some of the dates to keep in mind.
Age 50: Catch up on retirement contributions
After you turn 50, the IRS allows you to make “catch-up contributions”. See note 1 These let you contribute beyond the standard annual limit to 401(k)s and IRAs. This can boost your savings, especially if you’re concerned you might not have saved enough during your career.
Age 55: Consider diversifying and boosting your HSA
At age 55, you’re able to start making catch-up contributions to your health savings account, or HSA. This can be a valuable tool as you plan for retirement. You can contribute an additional $1,000 each year to your HSA, on top of the yearly maximum contribution amount. Once you’re enrolled in Medicare, you cannot contribute to an HSA.
This age also presents an opportunity to diversify your investments, especially if your employee stock represents a large percentage of your overall portfolio. See note 1 Employees with at least 10 years of participation in an Employee Stock Ownership Plan, or ESOP, may diversify up to 25% of company stock each year, beginning at age 55 and ending at age 59. The year you turn 60, you can diversify up to 50%.
If you leave your job after age 55, you may be able to withdraw money from your employer-sponsored retirement plan without paying penalties thanks to the IRS rule of 55. See note 1 You’ll still have to pay income taxes on it, and the provision only allows these withdrawals up to age 59 ½. Qualified public safety workers can take advantage of this rule a little earlier, starting at age 50.
Age 59 ½: Skip the federal tax penalty
This is generally the earliest you can withdraw money from an IRA, 401(k), or 403(b) without penalty or limitations. However, just because you can take money out of your retirement plan doesn’t mean that you should. For example, you may still owe federal income tax on these withdrawals. It’s best to discuss your plans with your financial advisor or tax professional.
Now that you’ve reached age 59 ½, and assuming your Roth IRA has been open for at least five years, distributions of earnings are now tax-free.
Age 62: Qualify for Social Security benefits
Most people can start collecting Social Security at age 62. Widows or widowers without children younger than 16 can receive reduced benefits starting at age 60.
It may be tempting to start receiving benefits early, but keep in mind that you may be reducing your lifetime benefit by about 30%. Compare that to waiting until your full retirement age, which varies depending on when you were born. See note 1 If your spouse will be dependent on your Social Security benefit, their life expectancy should be the basis for your claiming strategy.
Around this time, you may also be able to take advantage of special tax treatments for seniors in your state. For example, you may be able to reduce or freeze some of your state, local or municipal taxes. Some states also offer tax credits or rebates. It can also be a good idea to compare your state’s taxes to other states. See note 1
Age 65: A major milestone with many changes
This is the earliest age at which many people qualify to enroll in Medicare. The Medicare Initial Enrollment Period, or IEP, starts three months before your 65th birthday and concludes three months after your 65th birthday. Don’t miss your window of opportunity, otherwise Medicare Part B and prescription drug coverage Part D may be more expensive.
It may be helpful to talk to your financial advisor to understand how your employer-provided health care benefits might be affected when you turn 65 and to familiarize yourself with the basics of Medicare. And once you enroll in Medicare, you are no longer able to contribute to an HSA. You lose eligibility on the first day of the month you turn 65.
Those aged 65 and older can get a break on their federal income taxes thanks to a higher standard deduction. See note 1 Talk to your tax preparer to determine if you’ll save more taking this new higher standard deduction or by itemizing. Note: The IRS considers you to be age 65 on the day before your 65th birthday.
Ages 66 to 67: Full retirement age
If you were born from 1943 to 1954, congratulations! You’ve reached full retirement age for Social Security. That age increases by two months for every year after 1959. For example, the full retirement age for those born in 1959 would be 66 and 10 months. For those born after 1960, the earliest they’ll reach full retirement age is age 67 in 2027.
No matter when you reach full retirement age, it may still make sense to delay the start of Social Security benefits, depending on your marital status, employment status and other circumstances.
Age 70: File for Social Security if you haven’t already
If you defer taking your Social Security benefits in your 60s, you may be eligible for tax credits. However, at age 70, those credits end. That means there’s no longer any benefit to delay receiving Social Security. If you haven’t started receiving your benefits, consider doing so now.
Age 73 and older: Take your required minimum distributions
If you made pre-tax contributions to a 401(k) during your working years, the law requires you to begin taking taxable withdrawals by a certain age. Currently, that age is 73 for those who turn 72 after Dec. 31, 2022. For those who will turn 74 in 2023 or later, the required minimum distributions, or RMDs, kick in at age 75.
These are just a few of the key dates to keep in mind as you navigate through retirement. To see if you’re on track for your retirement, consider a checkup by contacting a USAA Retirement Income Specialist at 800-531-3392.
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