When it comes to retirement, your bank account is more important than your birthday.  Even so, there are several key retirement ages that you will want to keep in mind as you plan.

Age 50:  Once you hit the big 5-0, the government raises the contribution limits on your IRA and 401(k).  For those turning 50 in 2013, you can put an extra $1,000 into your IRA and an extra $5,500 into your 401(k).  That raises the contribution limits to $6,500 and $23,000 respectively.  These “catch-up” contributions can be great if you still have some ground to cover in order to reach your savings goal.

Age 55: If you plan on retiring earlier than most, 55 might be a good target.  That’s because there is a provision in the tax code that allows you to take early distributions from your retirement plans at age 55 without paying the usual 10% penalty.  These are called 72t distributions and, as you might expect, certain rules apply.  Work closely with a trusted adviser if this is an option you’re considering.

Age 59 ½:  This is the magic age where the government allows you to start taking distributions from your retirement plans without paying the 10% early withdrawal penalty.

Age 62:  This is the earliest date that you can elect to receive Social Security benefits.  As I said in a recent article, however, claiming Social Security at age 62 is like buying a pair of leather pants: almost always a bad idea.  Claiming at 62 would result in a 25% permanent reduction in your benefits.  The longer you wait, the more you will get.

Age 65:  This is the age that you become eligible for Medicare.  If you’re already receiving Social Security benefits by your 65th birthday, you’ll be automatically enrolled in Medicare.  If not, then you’ll need to actually sign up.  You will have a 7-month window to enroll: 3 months before your birth month, your birth month, and 3 months after.  Sign up in that window, because there are penalties if you sign up late.

Age 66:  Most baby boomers can receive full Social Security benefits at age 66.  Depending on when you were born, however, you might be able to get full benefits a little sooner or have to wait a little longer.  Check here to see when you will be eligible for full benefits.

Age 70:  Just like the Social Security Administration reduces your benefits if you retire early, they increase your benefits if you retire late.  For those born after 1943, you get an extra 8% for every year you wait past full retirement age up to age 70.  After age 70, there’s no benefit for waiting.  Said another way, claiming Social Security benefits at 62 will result in the smallest check and claiming at 70 will result in the biggest check.

Age 70 ½:  One of the key benefits of your retirement accounts is that they grow tax deferred.  Uncle Sam can’t wait forever, though.  Congress needs money to fund all those brilliant schemes that they’re always hatching.  So at 70 ½ they start forcing you to take required amounts from your retirement accounts each year.  Work closely with your adviser to determine your Required Minimum Distributions (RMD), because there is a 50% tax penalty on any amount that you should have taken, but didn’t.  The RMD rules don’t apply to Roth IRAs.

~ Joe

Photo by louderthanever.  Used under Creative Commons License.
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