Key milestones for retirement planning

When thinking about retirement planning, we often focus more on the savings aspect, not on the important ages that we should keep in mind to take the best advantage of retirement benefits and avoid penalties. Many of us don’t realize that retirement benefits have different eligibility ages. For example, your age is a big factor in how much Social Security you can expect to receive. Read on to learn more about key milestones for retirement planning.

• When you reach age 50, you are able to take advantage of catch-up contributions to your retirement plan. Individuals age 50 and older can make 403(b) catch-up contributions of up to $6,500 for a maximum possible 403(b) contribution of $27,000 in 2022. To be eligible for catch-up contributions in any given year, you first must meet the maximum annual contribution IRS limit, or the max for your organization's retirement plan (if it includes a catch-up provision).
  
  For those 50 or older, the catch-up provision can provide a great opportunity to contribute more to your retirement savings. This is especially true if you haven't always been able to contribute the maximum amount in the past. The pre-tax contributions also allow you to reduce your current taxable income even further.
  
  
• At age 59 ½, the 10% early withdrawal penalty on traditional IRA distributions ends. However traditional IRA withdrawals are not required until after you reach age 72. If you make a withdrawal after age 59 ½ there will not be a penalty, but you will be required to pay income tax on part or all of the IRA withdrawal.
• The earliest age you can begin receiving Social Security benefits is 62 years old. The advantage is that you will receive your Social Security benefits longer. The disadvantage is your monthly benefits will be reduced if you start at this age.
  
  
• Medicare eligibility begins at age 65. You are able to enroll in Medicare during a seven-month period that begins three months before the month you turn 65. Be certain to sign up on time because your Medicare Part B premiums will increase by 10% for each 12-month period you were eligible for benefits but did not enroll. If you delay enrollment because you or your spouse is covered by a group health plan at work, you must sign up for Medicare within eight months of leaving the job or health plan to avoid the penalty.
  
  
• The full retirement age for Social Security benefits for most Baby Boomers is 66 years old. Individuals born between 1943 and 1954 qualify for their full Social Security benefit at age 66. The Social Security full retirement age gradually increases from 66 and two months to 66 and 10 months for those born between 1955 and 1959. For example, the full retirement age is 66 and six months for people born in 1957. Once you reach your full retirement age, if you desire you can work while receiving Social Security benefits without having any of your payments withheld.
  
  
• The full retirement age for younger generations, those born after 1960, is 67 years old.
  
  
• You can increase your Social Security payments if you delay payments until age 70. Social Security benefits increase by 8% for each year you wait to start your benefits between your full retirement age and age 70. After age 70, there is no additional benefit to waiting to sign up for Social Security.
  
  
• At age 72 you are required to take annual withdrawals from 403(b)s and traditional IRAs and pay the resulting income tax bill. This is known as a required minimum distribution (RMD) and the penalty for missing a required minimum distribution is 50% of the amount that should have been taken out. Your first distribution must be taken by April 1 of the year after you turn 72. After that, annual withdrawals are due by December 31 each year. Those who delay the first withdrawal until April will need to take two distributions in the same year, which could result in a big tax bill that year.

Retirement planning is a long-term objective. The financial planning specialists at MMBB can answer your questions and assist you in formulating a plan that will help you achieve your retirement savings goals.