There are a number of age milestones on the road to retirement. These are points in your life at which you become eligible for a special status or privilege which you were not entitled to until then.
I have tried to list all age milestones that apply to typical American retirees below. Even if you are not close to retiring, it is good to know what lies ahead. It is also interesting to see what the implication of these milestones are for someone who wants to retire early.
At 50, you are eligible to start making "catch-up" contributions to 401(k) and IRA accounts. For IRAs, in 2008, you can invest an additional $1,000 over the $5,000 limit. For 401(k) and 403(b) plans, you can contribute $5,000 above the $15,500 limit in 2008.
One way to look at this milestone is that if you haven't saved a significant amount for retirement by age 50, this should serve as a wake-up call. Even the IRS thinks that it is time for you to get your act together. For those who are on track with their retirement savings, this is still a great opportunity since you get to deduct eligible contributions including catch-up contributions from your taxable income. At 50, you are likely to be in your peak earning years, so this tax savings could be significant.
50 is also the earliest age a disabled spouse can collect survivor's retirement benefits from Social Security.
If you have assets in an employer’s retirement plan such as a 401(k) or 403(b) and leave work after age 55, you may take a distribution without facing the 10% early withdrawal tax penalty. This provision does not apply to traditional IRAs.
As I mentioned in an earlier post on early withdrawals from retirement accounts, If you are 55 or older, and considering retirement, this is a good option if you have a significant amount in your current employer's plan and you do not wish to roll it over to an IRA. This needs to be planned carefully to meet all IRS requirements to avoid the penalty.
Now you become eligible to start taking withdrawals from your employers' retirement accounts and from your IRAs without penalty. You will have to pay taxes on any withdrawals.
This is not applicable to Roth IRAs. You may withdraw from your Roth IRA contributions without facing taxes or penalties, and if you have held the account for at least five years, you may withdraw any earnings as well.
If you have saved enough money for retirement, and have no major financial commitments left (such as mortgage payments or children in school), this is a good age to hang it up.
Health care is the biggest hurdle to retirement for many people at this age. If you are lucky to receive retiree health benefits, or qualify for an affordable private policy, you are in good shape. Otherwise, you may be forced to work until 65 when you become eligible for Medicare. For those with preexisting medical conditions, this is often the only option.
If you are a widow or widower, you can begin collecting Social Security at 60. The payments will be reduced if you claim them this early, however. If you remarry before age 60, you permanently lose survivor benefits.
Some companies that provide traditional defined-benefit pension plans or cash balance pension plans allow withdrawals at 60.
This is the earliest age for receiving regular Social Security benefits, though it will pay to wait until your Full Retirement Age. Your Full Retirement Age depends on when you were born. If you start collecting earlier than your Full Retirement Age, your payments will be permanently reduced.
At 62, you can also collect your share (50%) of the amount being received or eligible to be received by a current or former spouse. These benefits will also be reduced permanently from what you would be entitled to at full retirement.
Some companies that have pension plans allow retirement at this age with full pension benefits.
62 is also the minimum age at which you can get an FHA reverse mortgage, where you receive money from a lender in exchange for the equity in your home. Most commercial lenders also require a minimum age of 62 for reverse mortgages.
This is an interesting milestone for those who are financially ready for retirement but do not qualify for private medical insurance. This is the earliest age at which you can leave work, and continue your coverage under COBRA (which may last up to 18 months) until you become eligible for Medicare. According to some financial planners, this is an increasingly popular retirement age for many baby boomers.
The way the American health care system is tied to one's employment would be unbelievable to people in most other countries. It is almost like there is a conspiracy to keep you in the workforce for as long as possible. I can't wait for health care reform in some form to arrive that will require insurance companies to cover everyone regardless of preexisting conditions.
Medicare eligibility finally arrives at 65. You can begin receiving Medicare on the first day of the month in which you turn 65. Most company pension plans also provide full benefits at 65.
Those born in 1937 and earlier are eligible for full Social Security benefits at 65. However, Full Retirement Age for younger workers is higher.
This is the Full Retirement Age for Social Security benefits for those born in 1960 and later. Even this is likely to go up under some of the proposals being considered for reforming the Social Security program.
If you did not start receiving Social security payments at Full Retirement Age, the benefit you will receive will increase until 70. After 70, you get no additional benefit just for waiting, so you might as well claim your Social Security benefits if you haven't done so already.
When you turn 70½, you are required to take distributions from qualified employer retirement plans and traditional IRAs, also known as required minimum distributions (RMD). You must start making required minimum withdrawals no later than April 1 of the calendar year following the year in which you reach age 70½. There is a stiff tax penalty if you fail to start taking RMD when required.
If you continue working beyond age 70½, you don't have to make minimum withdrawals from a qualified retirement plan until you actually retire. However, you must begin withdrawals from any IRAs by 70½.
Roth IRAs are not subject to the age 70½ mandatory distribution rules.
Did I miss any other milestones? Please leave a comment.
If you liked this post, you may wish to check out some of my other posts: