Bruce Helmer and Peg Webb
Everyone has their own unique retirement timeline. But just about everyone will face certain retirement milestones in approximately the same order and at the same life stage. Today’s article focuses on what you should be thinking about as you enter your 50s, 60s and 70s.
Accumulate more in your 50s
Beginning in your early 50s, there are a number of important milestones to pass on your road to retirement. As you begin to visualize what your retirement will look like in another decade or two, be sure to build these steps into your financial plan, and make sure they are aligned with your goals.
When you are 50, you can start to make “catch-up” contributions to most qualified retirement plans that can boost your personal savings. Catch-up contributions of up to $7,500 in 2023 and 2024 may be permitted in your 401(k) — other than a SIMPLE 401(k) — 403(b), SARSEP or governmental 457 plan. You must make catch-up contributions to a retirement plan via elective deferrals, and they must be made before the end of the plan year.
You can make catch up contributions to your traditional IRA or Roth IRA of up to $1,000 for the 2023 tax year, so long as you make them by the due date of your tax return (not including extensions). Catch-up contributions of $1,000 to your health savings account (HSA) are also allowed when you reach age 55 and can be made each year until you reach age 65 or until you enroll in Medicare. The HSA catch-up allows you to reduce your taxable income while increasing your HSA balance as you get closer to retirement.
In recent years, it’s become somewhat easier to withdraw money from your retirement accounts without being penalized. At age 55, for example, early, penalty-free withdrawals from your 401(k) may begin if you leave your job. But the rule is strict: You can only take penalty-free withdrawals from a 401(k) account sponsored by the employer you’re leaving.
Upon reaching age 59½, penalty-free withdrawals from all retirement accounts are permitted.
Feel entitled in your 60s
As you enter your sixth decade, lots of benefits start coming your way. Perhaps the biggest is your eligibility to collect Social Security benefits, which kicks in at age 62. But remember, your benefits are reduced if you start collecting them before your full retirement age of 67. For example, if you turn age 62 in 2024, your monthly benefit would be about 30% lower than it would be at your full retirement age. And for every year you delay claiming Social Security past your full retirement age, up to age 70, you get an 8% increase in your benefit. Your health status, expected longevity and retirement lifestyle are the three variables you need to consider in your decision to claim your Social Security benefit.
At age 65, Medicare Part A (Hospital Insurance) and Part B (Medical Insurance) eligibility generally begins for everyone, unless you have a disability, End-Stage Renal Disease, or ALS (also called Lou Gehrig’s disease), in which case you can apply earlier. To be eligible to receive Medicare you must have a specific number of quarterly earnings, or qualify for coverage as a spouse, parent or child.
Generally speaking, anyone who was born in 1960 or later qualifies for full retirement age at 67. The full retirement age is 66 if you were born between 1943 and 1954 and increases gradually if you were born between 1955 and 1960.
Spending down in your 70s
Septuagenarians occupy a special place in the U.S. Tax Code. For example, age 70 is the last year to claim Social Security benefits (it’s also the age that will pay you the most monthly benefit). If you’re age 70 or older, you should apply for benefits, because your benefits will not increase if you continue to delay applying for them.
Uncle Sam generally wants you to start taking required minimum distributions (RMDs) from your 401(k) or IRA around age 72, depending on your birthday. At age 70½ or older, however, you are permitted to make Qualified Charitable Distributions (QCDs) of up to a total of $105,000 directly from a taxable IRA to one or more charities instead of taking the RMD. But to ensure QCD tax benefits, you must coordinate your QCD with your RMD, or the QCD could be treated as taxable income. Paying attention to the timing of the “first-dollars-out” rule is important.
Finally, at age 72, RMDs begin for most taxpayers, unless you are turning 73 in 2024. Paying attention to when you must begin taking RMDs is critical, as they could have an impact on your Medicare costs and taxes, and missing a withdrawal could result in major penalties. Keep in mind that, as a result of the SECURE 2.0 Act, there are no RMDs for Roth 401(k)s in 2024.
Each of these milestones represents a decision point in your financial plan, but you don’t have to go it alone. Working with a financial adviser and tax professional can help you prepare for each of these stops along your retirement journey.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Bruce Helmer and Peg Webb are financial advisers at Wealth Enhancement Group and co-hosts of “Your Money” on WCCO 830 AM on Sunday mornings. Email Bruce and Peg at yourmoney@wealthenhancement.com. Securities offered through LPL Financial, member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, LLC, a registered investment advisor. Wealth Enhancement Group and Wealth Enhancement Advisory Services are separate entities from LPL Financial.
