Life is full of important milestones – getting your driver’s license, going to college, finding a job, getting married, buying a house, and having children. Retirement is another significant chapter that marks the start of a new and important part of your life. To make the transition as smooth as possible, it is essential to have a plan in place that will help you live the life you envisioned post-employment.

The following retirement timeline highlights important age you may want to pay special attention to as you work with your insurance professional to develop a retirement income strategy.

  • Age 50: Increase Retirement Savings
    Pre-retirees age 50 and over can contribute up to $18,000 plus up to $6,000 in catch-up contributions (if allowed by employer) to their 401(k) plan.1
  • Age 55: Penalty-Free 401(k) Zone
    If you retire at age 55 or older, you can potentially take distributions from your 401(k) or other employer-sponsored retirement plan without incurring penalties. You can avoid the usual 10% federal tax penalty on early withdrawals, but note that you’ll still owe income taxes on these distributions.2
  • Age 59 ½: Penalty-Free IRA Zone
    Once you hit this half birthday, you may take IRA withdrawals without getting penalized. Traditional IRA withdrawals are taxed as income. Roth IRA distributions are tax-free and penalty-free if the Roth IRA has been held for at least five years.
  • Age 62: Social Security Eligibility Begins
    At age 62, you may be eligible to receive Social Security benefits. Keep in mind, however, that if you start taking benefits at this age, your benefits are reduced by a fraction of a percent for each month before your full retirement age (which varies depending on your birth year).3
  • Age 65: Medicare Eligibility Begins
    As you may know, Medicare is federal health insurance for people 65 or older and for those under 65 with certain disabilities. Starting three months before your 65th birthday until three months after you turn 65, you can sign up for Medicare benefits. Or, if you’re already receiving Social Security benefits, in most cases you’ll be automatically enrolled in Medicare.
  • Age 70: Maximum Social Security Benefits Begin
    If you delay claiming Social Security benefits, you may be eligible for increased payments. After age 70, however, there is no additional incentive for delaying benefits.
  • Age 70 ½: Required Minimum Distributions
    At this age, you must start taking your annual required distributions (RMDs) from retirement accounts, such as a traditional IRA. Take note that RMDs are taxed as ordinary income.

 

What is the Full Retirement Age for Social Security?* At Age 623
Year of Birth4 Full (normal) Retirement Age Months between age 62 and full retirement age5 A $1000 retirement benefit would be reduced to The retirement benefit is reduced by6 A $500 spouse’s benefit would be reduced to The spouse’s benefit is reduced by7
1937 or earlier 65 36 $800 20.00% $375 25.00%
1938 65 and 2 months 38 $791 20.83% $370 25.83%
1939 65 and 4 months 40 $783 21.67% $366 26.67
1940 65 and 6 months 42 $775 22.50% $362 27.50
1941 65 and 8 months 44 $766 23.33% $358 28.33%
1942 65 and 10 months 46 $758 24.17% $354 29.17%
1943-1954 66 48 $750 25.00% $350 30.00%
1955 66 and 2 months 50 $741 25.83% $345 30.83%
1956 66 and 4 months 52 $733 26.67% $341 31.67%
1957 66 and 6 months 54 $725 27.50% $337 32.50%
1958 66 and 8 months 56 $716 28.33% $333 33.33%
1959 66 and 10 months 58 $708 29.17% $329 34.17%
1960 67 60 $700 30.00% $325 35.00%

Medical Insurance: A Common Obstacle for Early Retirees

Interested in retiring early? You may have wondered how you’re going to pay for health insurance, which is one of the biggest expenses facing early retirees. Aside from government employees, and those at a few large corporations, many people will have serious concerns about health care coverage in their retirement years. Also given federal, state, and local budget issues, and continuing economic pressures on business, even those who think they have retiree health benefits locked up, may not be free from worry.

You may want to consider a guaranteed income vehicle, such as a fixed indexed annuity, to help you address these expenses when building a retirement income strategy.

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1 IRS, “Retirement Topics – 401(k) and Profit-Sharing Plan Contribution Limits.” January 26, 2017. View Source.

2 This rule does not apply to traditional IRAs, which penalize pre-59 ½ distributions. Also, some employers do not allow distributions from their sponsored retirement plans while you’re still employed in any capacity.

3 Social Security Administration. Benefits Planner: Your Future Benefits. February 2017. View Source.

* Social Security Administration, 2014, View Source.

3 You must be at least 62 for the entire month to receive benefits.

4 If you were born on January 1st, you should refer to the previous year.

5 If you were born on the 1st of the month, the Social Security Administration figures your benefit (and your full retirement age) as if your birthday was in the previous month. If you were born on January 1st, the Social Security Administration figures your benefit (and your full retirement age) as if your birthday was in December of the previous year.

6 Percentages are approximate due to rounding.

7 The maximum benefit for the spouse is 50% of the benefit the worker would receive at full retirement age. The % reduction for the spouse should be applied after the automatic 50% reduction. Percentages are approximate due to rounding.