Most people think that when they retire is a personal decision – and that is it. But when it comes to access to retirement benefits, your choice is limited by the rules government has. Benefits like Social Security and Medicare are only available at a certain age and there are even limitations when you can access your own retirement funds. Below, I discuss six oldest milestones that everyone should be aware of when planning to retire.
1. Age 59 1/2: Pension Distributions Are Not Penalized
When you become 59 1/2, you can start withdrawing money from your pension accounts without penalty. Before this, you pay a 10% early repayment penalty on top of any income tax you owe. It is worth noting that if you take money from tax-deducted accounts, you still need to pay income tax no matter how old you are.
But just because you can withdraw your money without penalty at this point doesn't mean you should. The longer the money remains in your account, the more it can grow. The $ 50,000 you deduct to cover your pension costs this year will be worth over $ 73,000 in five years, assuming an 8% annual return. Think carefully about how much you need to save for retirement and delay withdrawals until you are reasonably confident that you have enough to look through the rest of your life.
2. Age 62: Social Security Support Begins
You can sign up for Social Security as soon as you become 62, but you will not receive your full pension benefit if you start this early. For each month that you take Social Security before your full retirement age (more on that below), your checks will be reduced. If your full retirement age (FRA) is 66 and you start taking benefits at 62, you will only receive 75% of the planned benefit amount per check. This means that if you were entitled to $ 1000 per month on FRA, you would only get $ 750 per check. Adults with a FRA of 67 are only eligible for 70% of their scheduled performance if they start at. 62.
3. Age 65: You are eligible for Medicare
When you become 65, you can sign up for Medicare. This helps pay for healthcare expenses, but it doesn't cover everything. You will still have deductible and copay for most medical services and prescription drugs. And some services, such as dental work and long-term care, are not covered at all.
If you have not already done so, you should build health care costs into your pension plan. A recent study by Fidelity shows that the average 65-year-old couple today will need $ 280,000 to cover their healthcare costs in retirement. If you are not 65, you can expect the figure to rise with inflation. Make sure you have enough in your retirement accounts to cover at least as much or consider saving for medical expenses on a health savings account (HSA) if you have one.
Those who are fortunate enough to retire before 65 should note that they will be responsible for their own healthcare coverage until they reach 65. You may need to purchase health insurance alone to ensure you are covered in this meantime.
4. Age 66 to 67: Full retirement age
The National Board of Health and Welfare considers FRA to 66-67, depending on the year you were born. For adults born between 1943 and 1954, it is 66. For those born after 1954, it increases by two months each year. So for 1955 it is 66 and 2 months; In 1956 it is 66 and 4 months – and so on, until it reaches a FRA of 67 for all adults born in or after 1960.
Your FRA is when you qualify for 100% of your Social Security benefit. So to use our previous example, if you were entitled to $ 1000 a month, you would get everything by waiting a long time.
5. Age 70: You Get Your Maximum Social Security Benefit
If you choose to delay your social security benefits, your checks will continue until you reach the maximum benefit amount of 70. This will be 124% of your planned win if your FRA is 67 or 132% if it is is 66. It amounts to $ 1,240 or $ 1,320 per month, respectively, if the scheduled performance is $ 1000 per month. Begin social security somewhere between FRA and 70, and your amount is somewhere between the two.
6. Age 70 1/2: Minimum Minimum Benefits Required
At this age, you must start taking the required minimum benefits (RMD) from all your retirement accounts, except Roth IRA. This is the government's way of ensuring that the tax you owe on pension savings before you die. Your RMDs are determined by your age and the value of your retirement account at that time. You can use this spreadsheet to find out. Look out the distribution time next to your age and share this with the total value of your retirement accounts to find out how much you need to withdraw that year.
It is possible that your RMDs can push you into the next tax console, but avoiding them is not an option. If you do, you will incur a 50% penalty on the amount you should have taken out. One way around this is to draw on your tax-deducted pension accounts first, so the balance is lower when you reach 70 1/2. However, this will increase your taxes in the early years of the pension. Alternatively, you can roll the funds to a Roth IRA to avoid RMDs, but then you have to pay tax on the money in the year you make the transition.
Understanding these pension goals is important when deciding when to retire, how to use retirement benefits, and when registering for benefits like social security benefits. You can use this list to review your retirement plan and decide if you need to make any changes.