Key Ages for Financial Planning

Financial Planning throughout Aging

You say it’s your birthday…happy birthday to you! If you’re old enough to have read those words to the tune of a popular Beatles song, you should be aware of key birthday milestones that hold financial significance.

Even if the words didn’t recall a familiar tune, listen up because some birthdays (and half-birthdays) represent financial opportunities and responsibilities — and a few give you only one opportunity to get it right. Miss the moment and the oversight could cost you in terms of financial penalties as well as missed opportunities.

Key age milestones in your financial life

  • 50 — The action starts when you reach half a century of accumulated wisdom. This year you can begin making additional contributions to retirement accounts. These “catch-up contributions” are additional amounts taxpayers 50 and older can deposit in IRAs, 401(k) accounts and other qualified plans, over and above the standard limits. Catch-up contribution limits allow those who turn 50 or older in 2020 to contribute:
  • $1,000 extra to an IRA
  • $6,500 more to a 401(k), 403(b), 457 or Thrift Savings Plan
  • $3K in catch-up contributions to a SIMPLE 401(k)
  • 55 — The IRS has a special rule for taxpayers 55 and older who want to take a distribution from their 401(k) or 403(b) retirement accounts. Known as the “Rule of 55,” this bit of the tax code allows some workers to avoid penalties, but only if you:
  • Are no longer be working for the employer that sponsored the plan
  • have quit, retired, been fired or laid off from the job during or after the year you turned 55
  • have not have rolled the money over into an IRA
  • 59 ½ — This milestone is the big one for access to retirement funds. If you’re already retired, you can usually access monies stashed away in IRAs as well as employer-sponsored retirement accounts without paying a 10% early withdrawal penalty. Still working? Depending on the specifics of your employer’s plan, you may or may not be able to take penalty-free distributions from the account. Even if your plan doesn’t allow “in-service” distributions you can take money out of an older 401(k), assuming you didn’t roll the balance over to the new employer’s plan.
  • 62 — This birthday marks your first chance at collecting Social Security retirement benefits. Claiming now will mean lower benefits for the rest of your life. However, you may still want or need to do it anyway. Bear in mind though that if you claim Social Security before your full retirement age and also keep working, your monthly benefits could be reduced substantially.
  • 65 — It’s time to enroll in Medicare if you haven’t already done so. If you’ve been receiving Medicare based on disability, you’ll have an opportunity to enroll in Medicare supplements. If you’ve already claimed Social Security, you will be automatically enrolled in Medicare the month you turn 65. For all others:
  • If you are retired, it’s important to apply for Medicare coverage during the initial enrollment period. This seven-month period includes your birthday month, the three months before it and the three that follow. Failure to enroll then brings penalties that make coverage more expensive later.
  • If you’re still working for an employer that offers group health insurance and has 20 or more employees, you might prefer to delay enrolling in Medicare until after you retire. Talk with your benefits administrator to learn about your options.
  • 66/67 — Somewhere between these two birthdays lies your full retirement age. Claim Social Security on or after that point and you’ll receive the full amount, based on your earnings history. However, you may want to wait a bit longer. Delaying benefits could boost the amount you receive each month when you do claim. The addition can be significant, but each situation is different. It may not be to your advantage to wait, so talk with a social security specialist to determine the optimal timeline.
  • 70 — If you delayed claiming Social Security benefits, claim them now. Once you turn 70 there is no advantage to waiting; further delays won’t increase the amount you are eligible to receive.
  • 72 — You must begin taking required minimum distributions (RMDs) from tax-deferred retirement accounts (but not Roth accounts). By the end of each year (April 1st of the next year for the initial distribution) you must withdraw an amount calculated using IRS life expectancy tables. Pay close attention to dates and amounts, because failure results in a 50% penalty on RMD amounts not taken as required!

If you’ve made it to all of these ages and fulfilled all the steps they represent, you clearly deserve cake. Enjoy a slice today and on all the birthdays to come.

Tireless worker. Financial Advisor Guru. Speaker. Writer. Leader. Personal Growth Junkie.

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