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Looking forward to retirement and being able to put the alarm clock on perpetual snooze? If you’re zeroing in on your fifth decade, it could be a good time to see just how prepared for retirement you are. It’s also a good time to understand what financial milestones and IRS rules lie ahead in your 60s, 70s, and beyond so that you’re retirement ready.
To help you get started, we put together this mini list of retirement preparation steps and guidelines.
Don’t fear the half-century! For those of us who may have started saving for retirement later than we’d hoped, it’s the perfect time to beef up your efforts because you’re now eligible to make “catch-up” contributions for certain retirement accounts.
Beginning at 50, you can contribute as much as $6,500 on top of your regular contributions to your 401(k) and as much as $1,000 more to an IRA. And for those of you who have been saving since your first paycheck (well done!), go ahead and consider these catch-up contributions as one more way to boost your total savings.
If you retire at this age, you may be able to access money from your 401(k) plan without penalty, but you’ll need to pay income tax on your withdrawals. That being said, you may want consider if there’s enough in the account to cover all your retirement expenses between now and the years to come.
One major expense you’ll have to foot until you’re eligible for Medicare will be health care, which could make a bit of a dent even before the costs of visiting the doctor’s office. Family health care premiums can exceed $1,000 a month without an employer to help subsidize them, and average deductibles for individuals can run over $4,500.
This is the age where you can withdraw funds from both your 401(k) and IRA without penalty. You’re still going to want to consider how much you’d like to withdraw to help avoid outliving your savings.
This is the youngest you can be to claim Social Security, but you may want to hold off at least four years when you reach what’s considered full retirement age.
Many people to choose to wait, because your benefit amount could increase if you hold off taking benefits up until age 70. Check out the Social Security Administration’s website for details specific to your retirement age (here if your full retirement age is 66, and here if it’s older than 66).
Three months before you turn 65, you may want to sign up for your Medicare benefits. You’ll become eligible when you turn the big 6-5 and pre-enrolling will mean your coverage kicks in immediately. This is also the age you can begin withdrawing funds from a Health Savings Account (HSA) for non-medical reasons without incurring a 20% penalty. Keep in mind, however, that such withdrawals are taxed as regular income.
This is that full retirement age we mentioned. If you were born between 1943 and 1954, you qualify for full Social Security benefits at 66. Born in 1960 or later, you need to wait until you turn 67 to get the full benefit. And for those born between 1955 and 1959, your full retirement age is 66 plus a few months, depending on which year you were born. You can check the Social Security Administration’s website for the specifics on your retirement age.
The Social Security benefit amount you’re eligible for maxes out, so if you’ve held off making withdrawals, its as good as time as any to start collecting since you’ve now maxed out this benefit.
Depending on what type of retirement account you have, you’ll have to start withdrawing money in the form of RMDs (required minimum distributions). If it feels too soon, it used to be age 70 ½, but the SECURE Act, which took effect January 1, 2020, bumped the age for these required withdrawals to 72. This requirement generally applies to traditional IRAs, SIMPLE IRAs and SEP IRAs, and you must take RMDs each year.
You have to take your first RMD by April 1 the year after you turn 72. You must take the second distribution before the next December, and then by every December after that. If you don’t take these RMDs, you’ll be hit with a penalty that’s 50% of the RMD you should have taken. RMDs, like other withdrawals, are taxed as regular income.
Important: If you turned 70 ½ before December 31, 2019, you have to take RMDs by April 1, 2020.
If you turned 70 ½ on or after January 1, 2020, your first RMD isn’t required until 2022.
Good to know: if you have a Roth IRA, you won’t be required to take withdrawals. And if you don’t touch that money yourself, you can actually assign beneficiaries to them to eventually receive that money. Just keep in mind that your beneficiaries may be subject to RMDs based on a number factors. We have an RMD article that covers this sort of information.
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