Age-Related Retirement Rules for Those 55 and Older
Different Planning Considerations Apply as You Get Older
Certain retirement events are triggered at specific ages, such as when you can begin drawing on Social Security or when you are required to take IRA distributions. As you age, the rules for specific ages change. It might be beneficial to know about these changes as you reach various ages leading up to and into retirement.
At 55, it isn't too late to start planning for retirement. However, it might be time to get serious about planning. You'll want to start figuring out where your retirement income will come from. You should tally your income, savings, investments, assets, 401s or IRAs, and any other sources.
Calculate how much debt you have, and the level you can continue to keep. You should begin saving for the amount you'll need to be comfortable as you get older and transition out of the workforce.
A retirement income plan is best laid out in a timeline format so you can see year-by-year when pensions or Social Security will begin. It might be a good idea to forecast your investments to get an idea of the withdrawals you'll be able to make.
The future value of your money is what you should be concerned with at this time. Use it to invest in opportunities that will return more to you than it was originally worth.
Rather than looking for the highest returning investments, consider some strategies that can help you maximize your future income. For example, start shifting a portion of your savings into a bond ladder so that bonds are lined up to mature and match up with your future retirement age.
You could also look into medium or low-risk investments to boost your portfolio. As you grow older, you want to start minimizing the risk to your assets. You have less opportunity to recover any losses the older you get.
You might consider finding more work. Find a part-time job to add to the hours you already work if you can. You might be able to find work you are familiar with, which would make it easier to make extra income.
Extra income can allow you to maximize your 401(k) or other IRA contributions. This will give you a much-needed boost in your approaching retirement.
If you're wanting to retire early, make sure you budget for the cost of health insurance—it can be expensive until Medicare begins at age 65. If you need cash now, you may be able to access your 401(k) money penalty-free if you retired after reaching your 59th birthday.
Retirement account withdrawals need to be reported on your tax return. Look over how your retirement income will be taxed. Many people forget that they still have to pay taxes when they retire (depending on their income types).
Age 59 ½
This is the earliest you can begin taking withdrawals from your IRA and other retirement accounts without incurring a penalty tax. Some families may benefit from taking withdrawals at this age. This delays the start of your Social Security until age 70, but if you have other means of income you can compensate for this.
You may want to look into long-term care insurance to cover health care costs in later life. Not all expenses are covered by Medicare or Medicare Supplement policies, so it is a good idea to have alternative means to help pay for health care.
Hopefully, you started building up cash reserves earlier than this. However, if you haven't, you might want to begin. Become more conservative with your investments by reducing as much risk as you can afford to. Consider meeting with a retirement planner or financial adviser who can help you see if you're on track to have enough money to retire in the next few years.
This is when you can begin receiving Social Security benefits, but you'll receive a greater Social Security benefit if you wait until about age 66 to apply. You'll get an even larger benefit if you wait until age 70 to start collecting.
If you retire at age 62, you'll take approximately a 25% reduction in your benefit. If you retire at age 66, you'll receive no reduction, with incremental increases over the next four years. In 2019, the amount you receive at age 70 (if retiring at age 66) was about 132% of your benefit.
The earnings limit can reduce your benefit amount if you take Social Security early and continue to work. You'll also want to look at changes in your insurance needs and make sure you have your basic estate planning documents in order.
If you are married, and your spouse will be drawing social security as well, you might consider the 62/70 split. This tactic is used when one spouse has a lower income than the other. The lower-income spouse files at age 62, and the higher income spouse files at 70. The theory behind this is that one gets to retire and draw a benefit while the other continues to work with their benefit increasing.
Age 65 is when Medicare begins. Most people should enroll in Medicare a few months prior to their 65th birthdays even if they have employer or retiree health coverage. Part of your Medicare coverage is free if you have enough years of work in the U.S., but Medicare Part B is not free.
You'll pay a premium based on your modified adjusted gross income (MAGI) from your last two years' tax returns. If your current income is much lower than your income was two years ago, you can request a decrease in your Medicare Part B premium.
For most couples, delaying the start of the highest earner's Social Security until he reaches age 70 makes a lot of sense, but there's absolutely no benefit to waiting until past age 70 to begin benefits.
Age 70 ½
You're required to take distributions from your IRAs and/or other qualified retirement accounts like 401(k) plans when you reach the age of 70 1/2. These mandatory distributions are called required minimum distributions or RMDs.
They can be made in cash or you can distribute shares of investments. The total dollar amount that's distributed will be included as taxable income on your tax return. You can have taxes withheld directly from the distributions. This is often a good idea so you don't come up short on funds when you file your tax return.
It's important to review the plans you've put in place every few years. Periodic reviews allow you to catch small problems before they become large problems. You'll also want to give some thought to end-of-life decisions and begin discussing them with your spouse and immediate family.
It might be tough to start these conversations, but including your family in your planning is the responsible thing to do and it makes everything easier for all those involved.