Travis Hawley:

Some people say, “Age isn’t everything.” In fact, knowing these key retirement ages can make or break when it might be the right time for you to retire overall. Today I’m going to cover the seven key milestones when it comes to your retirement. Retirement is made up of a lot of key milestones and depending on whether you want to retire early or work a long time, you need to know the impact on what each milestone is on how that can either benefit you or be a detriment to your overall retirement plan.

Milestone one. Age 50. Catch up contributions. The reason that age 50 is so important for Americans is because after you get older than age 50, you are allowed to contribute more into your retirement accounts. Now, your retirement accounts are your 401(k)s, your 403(b)s, your 457s, traditional IRAs, Roth IRAs, you name it. But once you get past that age of 50 years old, if you’re someone who’s gotten a late start on planning for your retirement, you are allowed to contribute an excess amount into those accounts. Now, even if you aren’t someone that got a late start, it is a great way for you to be able to put more money into that in those final years of accumulating, so that way your lump sum is a lot bigger than what it would be prior.

Milestone two. 59 and a half. Penalty free retirement withdrawals. Now, the reason why 59 and a half is so great is because at 59 and a half your 401(k)s, your 403(b)s, we just listed them in the last segment. They’re all accessible to you at that point. Now, what I mean by that is once you get to 59 and a half, you can start withdrawing from those accounts and not pay a penalty.

So if you are someone that is looking to retire prior to 59 and a half, which most people we do come across want to retire yesterday, so that’s okay, but you do need to be aware that if you decide to retire before 59 and a half, those tax deferred and other retirement plans that you have, you can’t pull that money without paying a 10% penalty. Now, if it’s a tax deferred account and you haven’t paid taxes on that, you’re going to have to pay tax on that entire withdrawal amount in addition to another 10%. So if you’re someone that wants to retire early, just be aware that not all of your money is going to be accessible to you without penalty.

Milestone three. 62. First eligibility for Social Security. Now, the reason that 62 is so important is because you’ve been paying into Social Security for your entire working career. Now at 62, that’s when you can go and turn on your Social Security. But be careful, don’t fall into that classification of people that we call eager beavers, where just because you turn 62, that you should go and turn on your Social Security. Because it is there for you, but understand that if you decide to turn on your Social Security at age 62, you’re going to take about a 25% to 30% reduction on your Social Security amount depending on what your full retirement age is.

Another thing to be aware of that if you decide to turn on your Social Security prior to your full retirement age, there are earning limits as far as if you have earned income, and that’s income from a W2 or a 1099, if you’re self-employed. The most money that you can make is $22,320. For every $2 over that, Social Security is going to take $1 back. So even though that Social Security is there and waiting for you at 62, that doesn’t necessarily mean that it’s the right time for you to turn it on.

Milestone four. 65. Medicare. Medicare is a very complex system, but a lot of people use that age of 65 as that retirement goal. And the big reason is because Medicare is now available to you. Now, in looking at Medicare, there’s something that you need to know. Medicare is not a replacement for long-term care. Medicare, and there’s different parts of Medicare, are there to cover the different aspects of your doctor’s visits, hospital visits, depending on if you have PPO doctors and specific doctors that you go to, also your prescription drug plans. Medicare is there to cover all of that. Now, when planning for retirement, why we said that people look to use that age of 65 to cover Medicare. Understand that if you decide to retire prior to 65, you may have to figure out how you’re going to cover private insurance. And as you well know, private insurance is not cheap. And in most people’s cases when they get to Medicare at 65, they’re going to be paying a lot less on their overall medical expenses.

Milestone five. 66 and 67. When you become full retirement age for Social Security. Now, the reason that full retirement age is so important and really one of the most important things when it comes to turning on your Social Security is because that is when you are considered to be at full benefits and the handcuffs are off. Now, what I mean by that. In the prior segment, we talked about how that if you turn on Social Security early, you’re going to be subject to an earnings limit. Well, the reason for retirement age is so important is because once you get to full retirement age, you can make any amount of money of earned income and be on Social Security without being penalized for it. Now, your full retirement age is going to fall between 66 and 67, and your birth year is going to fall between 1955 and 1960. If you were born after 1960, your full retirement age is going to be age 67.

Milestone six. The great age of 70. Where Social Security is maximized at that point. Now, the reason that 70 is so important is because if you are someone that decided to delay your Social Security after full retirement age, you’re going to get what they call delayed retirement credits. So at full retirement age, you’re considered to be at full benefits, but if you delay it, Social Security is going to give you delayed retirement credits all the way up to age 70. Now, what you’re going to get with those delayed retirement credits. You’re going to get an 8% increase every year for as long as you delay. So depending on when your full retirement age is, whether that’s age 66 or 67, you could see a 24% to 32% increase on your Social Security benefit. Now, if you haven’t turned on your Social Security by age 70, it’s not going to grow anymore at that point. So unless you have loads of income coming in from different places, go turn on your Social Security is waiting there for you.

Milestone seven. 73. Required minimum distribution age. Now, if you are not familiar with RMDs, that’s required minimum distributions, it’s important to get familiar with it. What RMDs are is when Uncle Sam and the IRS start making you take money out of your tax deferred retirement accounts. Those are your four plans, your traditional IRAs or your SEP-IRAs, anything that we consider forever taxed. Because as long as it’s in that account, you’re going to have to pay taxes on it. Now, understand that when you get to age 73 and beyond, you’re going to have to take an RMD out every year. And if you do not, you will be subject to a 25% penalty. Yes, I said it. 25% penalty.

So if you have a required minimum distribution that is $20,000 for that year, and if you don’t take it, you’re going to get penalized in additional $5,000. Now, this is very important to know because you may be working with someone, and I can tell you that you don’t get a red envelope in the mail that says, “Urgent. Take your RMD.” In fact, it’s probably just going to come on a regular monthly statement, in very small print as far as what the amount is for that RMD for that year. And you need to understand that if you don’t take it, it can trickle down and create a lot of problems for you now and in the future. Now, just understand that with the required minimum distribution age, the rules have changed quite a bit over the past couple of years. Now because of SECURE Act 2.0, in 2033 the RMD age is actually going to change from 73 up until 75. So it’s very important that you’re up-to-date and knowledgeable about the forever-ending changes that seem to be happening when it comes to require minimum distributions.

To wrap things up, let’s go over the seven key milestones when it comes to retirement. Milestone one. Age 50. Where you can utilize the catch-up contributions for your retirement accounts. Milestone two. 59 and a half. Where you can utilize penalty-free withdrawals from your same retirement accounts that we talked about at milestone one. Milestone three. Age 62. Where you become eligible to utilize your Social Security benefit at early withdrawal. Milestone four. Age 65. When you become eligible for Medicare. Milestone five. Age 66 to 67. When you become full retirement age to utilize Social Security. Milestone six. Age of 70. When Social Security maximizes and it will no longer increase for you delaying your Social Security benefit. Milestone seven. The age of 73. Where required minimum distributions come into effect, and you have to start taking money out of your retirement accounts.

We are all going to have a different time as far as when retirement might come. For some of us, it may be early. For some of us, it may be late. But it’s important that we are all aware of the seven milestones that we just covered in today’s video. Now, if you are curious or interested on what goes into an overall retirement plan, check out this video here. I’m Travis Hawley. If you’re curious how we help guide our clients through these milestones, check out our website at www.mosleywealthmanagement.com. If you found this information helpful, feel free to subscribe, like, we’d love to hear your comments on the seven milestones that we just went through. We have a lot of great retirement tips that can help you build a great retirement plan. We appreciate you listening and watching. Take care.