Last week I read an article written by Mary Beth Franklin in the magazine, Investment News. It did such a great job summarizing the key ages related to Retirement Planning, I have republish it in this weeks blog message for your benefit.
Milestones and markers
These days, the road to retirement can be a bumpy ride. And soon it’s going to look like rush hour as Baby Boomers turn 65 at the rate of 10,000 people per day, every day, for the next 17 years. Yet an astonishing 17% of transition Boomers — those 55 to 65 years old — have yet to start saving for retirement, according to a 2012 survey by Allianz Life. Therefore, we’ve created a set of signposts to help these stragglers boost their savings, take advantage of tax breaks and watch out for the curves ahead.
In the year you hit the big 5-0, you can start stashing more money into your tax-deferred IRA and 401(k) or Roth accounts. In 2012, those 50 and older can add an extra $5,500 to their employer-based retirement plans on top of the $17,000 allowed for younger workers for a total of $22,500. Next year, the catch-up amount remains the same but the maximum contribution increases to $23,000. Those 50 and older can also contribute an extra $1,000 into the traditional or Roth IRA for a total of $6,000 in 2012 and $6,500 in 2013.
Penalty-fee 401(k) distributions for early retirees
If you leave your job at age 55 or older, you can tap your 401(k) or other employer-sponsored retirement account penalty free, avoiding the normal 10% federal tax penalty on early withdrawals. But you’ll still owe income taxes on distributions. The early-out exception does not apply to IRAs which penalize distributions before age 59 ½.
It’s also the age when individuals with a high-deductible health insurance plan can contribute an extra $1,000 to a tax-deferred H S A in both 2012 and 2013 to pay out-of-pocket medical costs tax-free. You can roll over unused H S A funds from year-to-year, making it an ideal way to supplement retirement savings.
Age 59 ½
IRA pay day
Begins the eligibility for penalty-free distributions from IRAs and other qualified retirement plans. But some employers don’t allow distributions from workplace-base plans while you’re still on the job.
Early claiming for survivors
Widows and widowers can collect Social Security survivor benefits as early as age 60, but the amount will be reduced by as much as 28.5% compared to claiming benefits at their normal retirement age and benefits. Survivor benefits may be reduced or even eliminated if they continue to work.
Early access to Social Security benefits
You can collect retirement and spousal benefits as early as age 62, but benefits will be permanently reduced by up to 25%.
Medicare kicks in
If you are already collecting Social Security benefits, you will automatically be enrolled in Medicare. Part A, which covers hospital costs, is free. Part B charges a monthly premium, currently about $100 per month for most beneficiaries, If you’re not yet collecting Social Security benefits, you’ll have to apply for Medicare.
Once you turn 65, you can no longer contribute to a Health Savings Account, but you can spend the money on anything, penalty free. However, you’ll owe income taxes on any non-medical distributions.
The magic number
66 is the magic age for Social Security benefits. You qualify for your full benefits, you are no longer subject to the earnings cap restrictions if you continue to collect a paycheck and you can engage in some creative claiming strategies to maximize benefits.
Maximum Social Security benefits
If you haven’t started collecting retirement benefits, now is the time to start even if you keep working. Delayed retirement credits, worth 8% per year starting at age 66, end once you turn 70.
Age 70 ½
After all those years of tax-deferred retirement savings, Uncle Sam wants his cut. You must start taking annual minimum distributions from your IRA and other retirement accounts (except Roths) based on your life expectancy. If you don’t, you’ll owe a 50% penalty on any amount you fail to withdraw.