7 Important Ages on the Journey to Retirement
Whether you've stopped counting birthdays or not, you should be aware that some birthdays are more important than others in terms of financial planning.
Milestone birthdays can serve as a reminder to think about your alternatives and consult with a financial advisor before making major decisions. As they prepare for their retirements, many investors anticipate specific milestones in their life.
These are primarily age-related milestones or the points in time when investors make financial decisions that will have a positive or negative impact on their retirement. In general, age-related milestones occur at specified times in your life. When people plan their retirements, they frequently utilize a "retirement date" and look at age-based benchmarks to determine when they may retire.
However, there are risks, and investors who want to retire should devise a strategy to guarantee that they get the most out of their money.
Age 55
At the age of 55, one of the first age-based milestones in retirement planning occurs. Many retirement plans, such as 401(k)s and defined and government pension systems, enable withdrawals at that age without incurring a tax penalty. This can be beneficial, especially for those who desire to retire early. That's more than enough incentive to make 55 a significant date in your retirement planning.
Age 59 ½
Another typical milestone for retirement planning is when you reach the age of 59 ½ years old. That's when you can withdraw money from an IRA or other eligible account without incurring a penalty or paying an extra tax to the IRS. Many plans allow for an in-service rollover from a 401(k) plan to an IRA even if you continue to work and contribute to the 401(k) plan after you reach this age, which is often ignored. That's crucial, especially since 401(k)s are becoming increasingly constrained in terms of choices and opportunities. This is a significant milestone for many investors, as it allows them to retire if they have saved enough money when they reach this point.
Age 62
As we approach our 60th birthday, we encounter new challenges. We can start receiving early Social Security income at the age of 62. Many investors choose this age as their retirement date when other milestones should be used instead. While many of us prefer to start collecting Social Security benefits sooner rather than later, there are some disadvantages. Early retirement from Social Security could result in a 25% reduction in lifetime payments. When you take Social Security early, there are additional income restrictions. These risks serve as significant reminders of why you should plan your retirement with the help of an experienced and qualified financial adviser.
Age 65
At 65, most of us become eligible for Medicare, which is becoming increasingly crucial as health care is one of the top worries and expenses for many retirees. Even if you want to wait until later to collect Social Security, you should apply for Medicare three months before your 65th birthday. Many traditional defined benefit plans, which are typically offered via employers, have a regular retirement age of 65, which is a significant milestone for many of us as we plan our retirements.
Age 70
When you reach the age of 70, you reach yet another milestone. If you wait until you're 70 to start collecting Social Security, your benefits will typically increase by 8% for each year you wait past full retirement age. Waiting until you're 70 to start collecting Social Security benefits is pointless.
Age 70 ½
The mandatory minimum distribution age of 70 ½ is the final age-based milestone. This is when you must take an annual withdrawal from your IRA or qualifying account, regardless of whether you need the money. You are not required to take withdrawals from your current employer's plan if you are still employed.
