When preparing for your retirement, think about how much income you may need each year to fund the lifestyle you want. To help maintain your living standard, you may need to save enough money to supplement other sources of retirement income, such as a company pension and/or Social Security. It is also important to be aware of how your age factors into your retirement decisions. Here are some essential age milestones to consider:
Age 55. Suppose you take early retirement, quit, or are otherwise terminated from employment. In that case, you can generally withdraw money from 401(k), 403(b), and profit-sharing plans without being subject to a 10% Federal income tax penalty for early withdrawals. IRS Publication 575 specifies the following: you must reach age 55 by December 31 of the year you leave the workforce; money must be distributed to you from your employer’s plan and cannot be transferred to an Individual Retirement Account (IRA); early withdrawals are subject to the plan’s provisions, and only money from your last employer’s plan qualifies (not funds from previous employers).
You may take early distributions from a traditional IRA without penalty, provided you receive “substantially equal periodic payments.” Since specific rules govern this provision, be sure to consult a qualified tax professional.
Age 59½. Generally, you can withdraw money from traditional IRAs and qualified retirement plans after the age of 59½ without being subject to the 10% tax penalty if plan-specific qualifications are met. Ordinary income tax is due if your contributions were tax-deductible. No income tax or penalty applies to distributions from a Roth IRA, provided you have reached age 59½ and have owned the account for at least five tax years.
Age 60. Widows and widowers may be eligible for Social Security benefits. For the most up-to-date information, visit the Social Security Administration’s website at www.ssa.gov.
Age 62. Some companies may allow retirement at 62 with full pension plan benefits. This is also the earliest age for receiving regular Social Security benefits, but the benefit amount is permanently lower than its potential maximum.
Ages 62–64. For those working and collecting Social Security benefits while younger than full retirement age—the age at which an individual is eligible to receive full Social Security benefits—the earnings threshold is $18,960 for 2021. One dollar in benefits is withheld (a “give back”) for every $2 earned above that amount. A portion of those benefits may also be taxed as income based on a complex formula that includes wages and tax-exempt income.
Age 65. Many company pension plans provide full benefits at this age. However, the age may vary by the company plan. Medicare eligibility also generally begins at age 65.
Ages 65–67 (or the year in which full retirement age is attained). Traditionally, full retirement age for Social Security was 65. However, for people born between 1938 and 1959, the full retirement age has been rising incrementally, and for those born in 1960 or later, the age for receiving full benefits is 67. The lower earnings threshold amount still applies for years before full retirement age, and a second earnings threshold rule applies for the year in which full retirement age is attained.
For those working and receiving Social Security benefits, there is a benefit give-back in 2021 of $1 for every $3 over $50,520 earned in the months before attaining full retirement. Once full retirement age is reached, the earnings threshold no longer applies, and a portion of benefits may be taxed as income based on a complex formula that includes wages and tax-exempt income.
Age 72. Required minimum distributions (RMDs) from qualified retirement plans, such as a 401(k) or IRA, must generally begin by April 1 of the calendar year following the year in which you reach age 72. Roth IRAs, however, are not subject to the age 72 mandatory distribution rules.
You have worked many decades to accumulate assets to prepare for enjoyable “golden years.” Be sure to consult with qualified tax and financial professionals to help you stay on track to achieving your retirement goals.