Many investors look ahead to certain events in their lives as they plan their retirements. These are mostly age-based milestones, the times when investors make financial decisions that will affect their retirement for better or for worse.
Generally speaking, age-based milestones happen during specific years in your life. People often use a “retirement date” as they plan their retirements and often look at age-based milestones to determine when they can retire. But there are hazards, and investors looking to retire need to hammer out a plan to ensure they can maximize their retirement benefits.
Milestone #1: Age 55
One of the earlier age-based milestones in retirement planning comes at age 55. That’s the age when many retirement plans, including 401(k)s and defined and government pension plans, allow withdrawals without imposing a premature tax penalty — usually 10%. This can come in handy, especially for individuals who want to retire early. That’s more than enough reason to make 55 a milestone as you plan your retirement.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Milestone #2: Age 59½
Another milestone, one of the most popular ones for retirement planning, comes when you reach 59½ years old. That’s when you can take withdrawals from IRAs or qualified money without facing a premature penalty or an extra tax from the IRS. While often overlooked, when investors reach this age, many plans allow for an in-service rollover from a 401(k) plan to an IRA even while you continue to work and contribute to the 401(k). That’s important, especially as 401(k)s are increasingly offering limited choices and options. This is a huge milestone for many investors, giving people the ability to retire if they have saved enough when reaching this age.
Milestone #3: Age 62
As we enter our 60s, we face additional milestones. Starting at age 62, we can begin taking early Social Security payments. Many investors use this age as their retirement date when they should be relying on other milestones instead. While many of us want to take Social Security early, there are some drawbacks. Taking Social Security early could lead to a 25% reduction in lifetime benefits. Income restrictions also come into play when you take Social Security early. These pitfalls serve as important reminders on why it’s important to rely on an experienced and knowledgeable financial adviser as you plan your retirement.
Milestone #4: Age 65
Another milestone comes at age 65, when most of us are eligible for Medicare, which is increasingly important as health care ranks as one of the top concerns and expenses for many retirees. Even if you are planning to collect Social Security later, you should file for Medicare three months before you turn 65. Many traditional defined benefit plans, usually offered through employers, set 65 as the normal retirement date, making this an important milestone for many of us as we plan our retirements.
Milestone #5: Full Retirement Age
Reaching the age to collect full Social Security is another milestone. For those of us born between 1943-1954, the full Social Security age is when we reach 66. Those of us born in the latter half of the 1950s reach the age to collect full Social Security between our 66th and 67th birthdays. Those of us born in 1960 or after have to wait until we are 67 to collect full Social Security. There are no income restrictions if we take Social Security when we reach that age to fully collect it and, usually, there’s a dramatic increase in income compared with starting to collect when you reach 62.
Milestone #6: Age 70
Another milestone comes when you reach 70. If you hold off until you hit 70 to start collecting Social Security, you usually see an 8% increase in your benefits for every year past your full retirement age. There’s no benefit to waiting until after 70 to start collecting Social Security.
Milestone #7: Age 70½
The last age-based milestone comes at 70½, which is the required minimum distribution age. This when you are required to take an annual withdrawal from your IRA or qualified accounts whether you need the income or not. If you are still working, you are not required to take withdrawals from your current employer plan.
Of course, there are plenty of other life events that affect your finances and your retirement: marriage, divorce, disability, death, kids going to college, health care and medical expenses, for example. If mishandled, these kinds of events can affect your retirement just as much as the age-based milestones.
All of these milestones and events can often change and derail retirement plans. They also highlight why you need to consult an experienced and knowledgeable financial adviser to help you craft a retirement strategy, no matter which milestones you are focusing on.
Bill Smith is CEO of W.A. Smith Financial Group and Great Lakes Retirement Inc., as well as an Investment Adviser Representative and insurance professional. His firms focus on retirement planning and wealth management.
Kevin Derby contributed to this article.
-
Stock Market Today: Stocks Enjoy a Bessent BoostThe Dow closed at an all-time high as investors welcomed Donald Trump's Treasury secretary nominee.
-
Why Wall Street Likes Scott Bessent for Treasury SecretaryMarkets are reacting positively to Trump's nomination of Scott Bessent for Treasury secretary. Here's why.
-
Three Reasons Why Your Adviser Won't Talk TaxesFinancial advice and tax advice go hand in hand — or at least they should. But a lot of times, they don’t. Here's why and what to watch out for.
-
Why Your Life Insurance Should Cover More Than Just DeathIf you became ill or an injury left you unable to work, how would you cover your expenses? Life insurance with living benefits could be the answer.
-
What Not to Do When Planning Your RetirementCommitting any of these four common mistakes can set you back in your golden years. Here's how to increase your chances of a successful retirement.
-
The Three Financial Questions Every Retiree Asks (or Should)Unless you can answer these three important questions, you may be at risk for the biggest retirement worry there is: Running out of money.
-
Six Missteps to Avoid as You Transition to RetirementDon't lose sight of your finances when you finally reach retirement. These six classic missteps can chip away at the nest egg you’ve worked so hard to build.
-
Why Does One Claim Jack Up My Insurance After Years of No Claims?Even loyal customers can be hit with an insurance premium hike after a claim, despite going many years without any claims. There's a reason for that.
-
To Future-Proof Retirement Security, We Need Better StrategiesWith retirees living longer and the inequalities that affect women and people of color, the retirement system needs some optimization. Here’s what would help.
-
Here's Why We All Win When Charitable Dollars Go to WomenGiving to charities for women and girls not only has a lasting impact on their lives — it also benefits society as a whole. Here’s how to start investing.
