You hit a lot of milestone birthdays when you’re young. There’s your first birthday, of course, and also the one where you turn 10 (finally, double digits!). At 13, you’re a teenager. At 16, you’re probably thinking about driving. At 18, you can vote; at 21, you can get into bars.
You hit a bunch of milestones later in life as well, and many of them have to do with retirement. Knowing these age milestones can help you better prepare for life after work. They include:
It’s catch-up time! People 50 and older can contribute $6,500 more to their 401(k)s or 403(b)s each year, for a total contribution of up to $26,000 this year. Those 50 and older who contribute to IRAs and Roth IRAs can throw in an additional $1,000, for a total maximum annual contribution of $7,000.
Normally people have to pay a 10% federal penalty, along with income taxes, when they withdraw money from retirement accounts before age 59½. The penalty (but not the taxes) disappears on 401(k) and 403(b) withdrawals if you’re 55 or older when you quit, get fired or retire. This “separated from service” rule applies during or after the year you turn 55.
At this age you can take withdrawals from workplace plans or IRAs without penalty. Also, some 401(k) plans allow workers who are at least 59½ to do an “in-service” rollover, allowing you to move money into an IRA while still working and contributing to the 401(k). If you’re interested, check with your 401(k) plan provider or your human resources department to see if this option is available to you.
For most widows and widowers, age 60 is the earliest that they can begin Social Security survivor benefits. (Survivor benefits are available starting at age 50 for survivors living with a disability, or at any age if the survivor cares for the deceased spouse’s children who are under age 16 or disabled.)
This is the earliest age you can begin Social Security retirement or spousal benefits, but your checks will be permanently reduced if you start before your full retirement age, which ranges from 66 to 67. Also, you’ll face an earnings test that reduces your benefit by $1 for every $2 you earn over a certain amount, which in 2021 is $18,960. The earnings test disappears once you reach full retirement age.
At 65, most Americans are eligible for Medicare, the government health care program. Typically, you’ll want to sign up in the seven months around your birthday — meaning the three months before the month you turn 65, the month you turn 65, and the three months after. Delaying after that point can cause you to pay permanently increased premiums. Explaining the ins and outs of Medicare is beyond the scope of this column, but you can learn more at medicare.gov or by calling Medicare at 1-800-MEDICARE (1-800-633-4227) to request the “Medicare and You” handbook.
Turning 66 to 67
Full retirement age is 66 for people born between 1943 and 1954. The age rises two months for each birth year after that until it reaches 67 for people born in 1960 and later. Waiting at least until full retirement age to start Social Security benefits means you won’t have to settle for checks that have been reduced because you started early or because of earned income.
A juicy benefit awaits those who can delay the start of Social Security after full retirement age: Their benefit increases by 8% annually until it maxes out at age 70. This not only means more money for the rest of your life, but if you’re the larger earner in a couple, it also maximizes the survivor benefit for your spouse.
Most retirement plan contributions reduce your taxes in the year you make them, and your account grows tax-deferred over the years. But eventually the government wants its cut. You’re required to start taking at least a minimum amount from most retirement plans beginning at age 72. (Required minimum distributions used to start at age 70½, but that’s been pushed back.) There are a couple of exceptions. If you continue to work, you can wait until you retire to start minimum distributions from your 401(k) or 403(b). Minimum distributions are still required from traditional IRAs even if you’re working. If you have a Roth IRA, however, you won’t be required to start distributions at any age. If you leave the money to your heirs, however, they will have to start taking withdrawals.