The term “milestone” is certainly appropriate when thinking about retirement. After all, saving and preparing ourselves for retirement is undoubtedly a marathon, not a sprint.
Whether you are just beginning your retirement planning journey, or are making the necessary adjustments along the way, there are several age-specific milestones to be aware of. Doing so will help ensure your golden years will be as bright as possible.
Any age: Before any retirement savings begin, it is important to have an emergency fund established regardless of your age. Most financial experts agree having a 3 to 6 months of expenses saved should be your minimum goal. And the funds should only be kept in a safe and 100% liquid place such as a checking, savings, or money market account.
Before age 49 – According to Einstein, compounding interest is the 8th wonder of the world. Time-saving early in life will your nest egg grow faster than if trying to catch up later in life. Take advantage of any company matches in your 401(k) and maximize your contributions.
Age 50 – If your retirement savings is lagging behind, beginning at age 50 you are allowed to make “catch-up” contributions to your 401(k) and IRA. For 2021, you may make an additional $6,000 401(k) and $1,000 IRA deposit.
Age 55 – There is a small window between the age of 55 and 59½ where if you leave your job where you have your 401(k), you may begin taking withdrawals without a 10% penalty. Income tax will apply, however.
Age 59½ – The withdrawal penalty on IRAs ceases at this age. But be sure to plan on paying income taxes on the amount taken out.
Age 62 – This is when monthly social security payments become available. It is important to note, however, any payments taken before your full retirement eligibility age will be significantly reduced by up to 30%.
Age 65 – Medicare eligibility begins at the age of 65. For most individuals, sign up for Medicare Part A and B is automatic. But, if you are not receiving social security benefits at least 4 months before turning 65, signing up will be necessary.
Age 66 – If you were born between 1943 and 1965, congratulations! You now qualify for full social security benefits. When planning for retirement in your younger years, keep in mind social security will only replace about 40% of your pre-retirement income.
Age 66½ – If you weren’t lucky enough to be born during the golden age of musical theater, but were born between 955 – 1959, you will reach full retirement benefit eligibility six months later.
Age 67 – Those born between 1960 and after will reach full retirement age at 67. Just a mere six or twelve months later than older generations.
Age 70 – Waiting until age 70 to take your full retirement from social security will increase your monthly payment. The increase is 2/3rd of 1% of primary amount for every month you wait to take payment up to this age.
Age 70½ – The IRS eventually will want to get their take of all the tax-free savings you’ve enjoyed over the years. Beginning April 1 after you turn 70½, the IRS will calculate the minimum distribution you must withdraw to avoid their steep 50% penalty.