More than 80% of baby boomers are looking forward to retirement, but at the same time, many fear outliving their savings, according to a survey from Transamerica Center for Retirement Studies. Around 39% worry they won’t be able to meet their basic financial needs in retirement. That’s where smart retirement planning comes in.
If you’re nearing retirement – or even 10 to 15 years out from your target date – it’s time to start paying close attention to several important retirement planning dates and steps you can take towards enjoying a comfortable retirement.
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1. Turning 50
Once you hit age 50, you can increase retirement savings by making “catch-up contributions” to certain retirement accounts. A catch-up contribution is an elective deferral exceeding a plan-imposed or statutory limit, according to the IRS.
If you’re age 50 at the end of the calendar year, you can make up to $6,500 in annual catch-up contributions in 2020 and 2021 to the following plans: 401(k) other than a SIMPLE 401(k); 403(b); SARSEP; governmental 457(b).
On a SIMPLE IRA or a SIMPLE 401(k) plan, the IRS allows catch-up contributions up to $3,000 through 2021. If you have a traditional or Roth IRA, your catch-up contribution limit is $1,000 through 2021.
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2. Age 55
Generally, age 59½ is the age when you can withdraw from your 401(k) without having to pay an extra 10% penalty for early distribution. However, there is an exception to this rule for some 401(k) plans if you lose or quit your job the year you turn 55 (or age 50 for certain public safety workers) or after, according to the IRS.
The “separation of service” exception doesn’t apply to IRA and other retirement accounts, only some (but not all) 401(k) plans.
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3. Age 59½
When you reach age 59½, you can finally take distributions from a 401(k), IRA and other retirement accounts without having to fork over the extra 10% early distribution penalty.
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4. Ages 62-70
Most people are eligible to begin drawing Social Security retirement benefits at age 62. However, you may not want to snag those benefits right away just because you can. That’s because when you begin drawing benefits at age 62, your monthly benefit amount is reduced by up to 30%, according to the Social Security Administration (SSA).
If you wait until your full retirement age — between 66 and 67, depending on your birth year — you will receive a much higher monthly benefit. Wait until age 70 and you’ll receive even more. To find out your benefit amount at different ages, contact the SSA. Sign up for an online SSA account to access benefits information anytime.
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5. Age 65
During the year you turn 65, you are eligible to sign up for Medicare, the government health insurance program. If you’re still working after age 65, check with your employee benefits provider to find out whether signing up for Medicare could affect your employee health insurance benefits.
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6. Age 72
Once you reach age 72, you’re required by the IRS to begin taking required minimum distributions from a 401(k) plan, traditional IRA, SEP IRA or SIMPLE IRA. If you have a Roth IRA, the IRS doesn’t require you to take minimum distributions after age 72. If you inherit a Roth IRA, however, you could be required to take minimum distributions. This doesn’t apply to anyone who hit 70 1/2 before July 1, 2019. Changes made to the SECURE act in 2019 have pushed the eligibility age to 72.
