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Get Me to Retirement on Time: Key Milestones You Don’t Want to Miss
Published Date : October 20, 2014
In the beloved 1956 musical My Fair Lady, Alfred Doolittle, the father of Eliza Doolittle, has one last spree before his own wedding. The familiar tune “Get Me to the Church on Time” is a plea to his friends not to let his merriment get in the way of his good intentions!
Few things are as important as being on time for the major milestone marked by your own wedding. But there are also critical timelines associated with other major life events, such as retirement. Perhaps you are lucky to have good friends like Alfred Doolittle’s keeping you on point but there certainly aren’t any chiming bells to remind us to heed these important milestones.
Age 50: At 50, future retirees are given a boost in their retirement saving. “Catch-up” contributions are allowed for 401(k) plans and IRAs. In 2014, the catch-up contribution limits are $5,500 for 401(k)s (increasing the total limit to $23,000) and $1,000 for IRAs (increasing the total IRA limit to $6,500). In 2015, the catch-up increases to $6,000 for 401(k) plans, with no increase for IRAs.. Other types of retirement plans offer similar catch-ups.
Age 55: Early retirees can begin making withdrawals from 401(k) plans penalty-free at age 55. Penalty-free early withdrawals apply to ERISA-qualified, employer-established, defined-contribution plans such as 401(k) and 403(b) plans but not to IRAs. You also must still be an active employee under the plan.
Age 59½: Six months shy of your 60th birthday, you may be eligible to begin making penalty-free withdrawals from 401(k) and IRA accounts. However, if you’re still working you will want to check with your plan’s administrator.
Age 62: Age 62 is the earliest age at which you can begin receiving Social Security benefits. It’s important to note that your benefits will be reduced if you begin receiving them before your full retirement age (FRA). Electing for social security benefits at age 62 reduces your benefit amount by a significant percentage, which is determined by your year of birth.
Age 65: 65 is a biggie! At age 65, you can sign up for Medicare. If you have not yet applied for Social Security benefits, you will have to register. If you have applied for benefits, you will most likely receive your Part A (hospital care) and Part B (medical care) cards in the mail automatically. If you have a health savings account (HSA), you can make withdrawals for nonmedical expenses without paying a penalty. And finally, those born before 1943 reach FRA for purposes of Social Security planning.
Age 66-67: Those born in 1943 or later reach FRA for purposes of Social Security planning at 66 (born between 1943 and 1959) or when they reach 67 (born in 1960 or later).
Age 70: For those looking to maximize Social Security, there is no additional benefit to waiting passed the age of 70. The rate of increase up to age 70 depends on your year of birth. Clearly, strategizing around your benefit election should be done carefully. Please see my blog on Social Security.
Age 70½: At this age, the required minimum distribution (RMD) is triggered for the minimum amount you must withdrawal from pretax 401(k), IRA and other retirement accounts. There are egregious penalties for not taking your distribution. The RMD requirement does not apply to ROTH retirement accounts.
Careful planning around each of these milestones can greatly benefit your overall strategy and help to avoid any unnecessary and costly fees associated with missing key dates. The Wealth Managers at Sand Hill are here to keep you on track.
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Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
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