Social Security benefits and retirement age milestones
If you are in retirement, approaching retirement or if you simply would like to learn a bit more about how certain age milestones matters when it comes to what you are allowed to do and what you have to do with your finances see below the overview of what happens at each of the specific ages.
This a general overview of some of the financial milestones and it is based on 2016 numbers.
- AGE 50
o Once you turn 50 you are allowed to begin retirement and IRA catch-up contributions. In 2016 that means you are allowed to put aside an additional $1000 every year into your IRA or an additional $6000 into your 401(k) or 403(b) retirement plan at work.
This catch-up rule can be beneficial for individuals who have not been saving enough in their younger working years but now due to making more money has the ability to save a larger amount of money.
The amount of allowable catch-up contribution could be higher in the years to follow depending on what amount the government sees fit as the allowable catch-up contribution.
- AGE 59 ½
o Now that you have reached age 59 1/2 you are allowed tax penalty free to start taking withdrawals from traditional IRA’s and 401(k).
If you have a ROTH IRA, you can also begin tax-free withdrawals as long as you have held assets in a Roth Ira for 5 years. Age 59 ½ is important because you now start having access to your retirement accounts without being penalized with additional taxes and if you have been a good and smart saver you might be able to step into retirement.
It is though important to remember that even though there are no more penalty taxes you will still have to pay regular income tax on withdrawals from your traditional IRA or traditional 401(k).
- AGE 62
o This is the earliest age that you can begin to receive your reduced social security benefits and it is time to start finding the best way to begin social security and to start analyzing when you should actually begin taking social security income.
There are many factors to look at such as what other income sources are available, spousal age and social security benefits as well as life expectancy calculations.
No matter if you start taking social security early or wait to get paid more at a later age make sure you understand the pros and cons of each option and make sure it fits within the rest of your financial plan.
- AGE 65
o Medicare benefits begin and you should start reaching out to social security 3 months before you turn 65 in order to activate Medicare.
The best place to learn about Medicare and understand the different choices there are around coverage and plans is through the government website www.medicare.gov
- AGE 66
o This is the normal retirement age to begin receiving your full social security benefits and as a broad rule, taking social security early or late will give you roughly the same total Social Security benefits over your entire lifetime.
If you make a decision to retire early, the benefit amounts will be smaller but you will be receiving the benefits for a longer period of time.
If you decide to wait and take benefits later, you will get paid the benefits for a shorter period of time but the payments will be larger and that will start catching up for the shorter time period.
There are pros and cons to activate your benefit at each age and truly each situation will require an analysis of what makes the most sense.
- AGE 70
o This is the latest age that you can begin receiving your social security benefits and will also be the age where your benefits will have reached the maximum payout available so waiting until age 70 can be a good option for certain people who have other assets available for income before age 70.
A great resource for more info on social security will be the official government website that is located at www.ssa.gov
- AGE 70 ½
o This is the age where you have to start taking required minimum distributions from your traditional IRAs and retirement plan account. This has to begin by April 1stthe year after reaching 70 ½.
It is important to pay attention to all of your IRAs, 401(k) and other pre-tax retirement accounts now because every single year going forward you will have to start taking income from these accounts and you will have to calculate what that minimum required distribution is.
That calculation has to be done based on all account values as of December 31st.
It is up to you to decide which account and which portfolio you take the income from and there is no penalty as long as you withdraw the required amount.
If you are not sure where to start your retirement plan, contact us today for a complimentary session at CreativeNurse
Written by CreativeNurse team