Forget These 10 Retirement Money Milestones? It’ll Cost You

Forget These 10 Retirement Money Milestones? It’ll Cost You
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When it comes to retirement, there’s rarely one right answer — especially since the federal government may move targets or use variables that can be confusing.

Case in point: The point at which many people are forced to start withdrawing money from most types of retirement accounts recently was bumped from the year you turn 70½ to the year you turn 72. But … the change doesn’t apply to everyone.

What follows is a list of key ages for retirement planning — including the ones for those required withdrawals — with details about who is affected, and how.

Age 50: Retirement account catch-up contributions

Everybody should steadily save for retirement. But the federal government tries to make it a little easier on those who got a late start by allowing “catch-up contributions.”

These are higher limits on the amount of money that people 50 and older can put in retirement accounts each year.

For example, for 2020, the base contribution limit for most workplace retirement accounts is $19,500 and the catch-up contribution limit is $6,500.

That means that someone who is 49 or younger can put a total of up to $19,500 in a 401(k) this year. But someone who is 50 or older can put $19,500 plus an additional $6,500 — for a total of $26,000 — in a 401(k).

For more details about the current contribution limits for all types of retirement accounts, check out “These Retirement Account Limits Just Increased.”

Age 55: HSA catch-up contributions

The IRS allows catch-up contributions with another type of account: health savings accounts, or HSAs.

For 2020, those age 55 and older can contribute $1,000 more to an HSA than younger people, assuming they’re eligible for an HSA.

Designed for people with high-deductible health insurance plans, an HSA is a savings or investment account from which you can reimburse yourself for eligible medical expenses.

HSAs are also tax-free, provided that you follow the IRS’ rules for them. As we detail in “3 Great Reasons to Set Up a Health Savings Account“:

“Putting money in a health savings account is one of the very few ways you can entirely avoid paying any taxes on your money — ever.”

Age 59½: Penalty-free retirement account withdrawals

Money in your retirement accounts can be tapped early for purposes other than retirement, but it’s not a choice to make lightly. Early withdrawals from individual retirement accounts (IRAs), for example, generally are subject to a 10% tax penalty.

That penalty disappears at age 59½.

Age 60: Social Security survivors benefits

Survivors benefits are a type of Social Security benefit for family members of people who have died but were receiving or were eligible to receive benefits at the time of their death.

If you are eligible for survivors benefits, you can start receiving them at age 60.

Age 62: Early Social Security retirement benefits

If you qualify for Social Security retirement benefits based on your own earnings history or that of a spouse or ex-spouse, you can start receiving those benefits once you turn 62.

Your benefit will be reduced for claiming before you reach what’s known as your full retirement age. But, some people can justify claiming as early as age 62, as we cover in “5 Reasons You Should Claim Social Security ASAP.”

Age 64¾: Medicare enrollment

As you approach age 65, don’t miss your initial enrollment period for Medicare, the federal health insurance program that primarily serves people age 65 and older.

This one-time enrollment period includes the month you turn 65, the three months before and the three months after. In other words, it starts around age 64¾.

Failing to enroll on time can delay your Medicare benefits and result in hefty, permanent financial penalties, as we detail in “4 Dangers for First-Time Medicare Enrollees.”

But if you’re already collecting Social Security benefits when you turn 65, the Medicare program will contact you automatically, so you don’t need to worry about remembering to sign up.

Age 65: Medicare benefits

If you sign up for Medicare in the first three months of your initial enrollment period, your Medicare benefits generally will begin the month that you turn 65.

The Medicare program explains:

“If you sign up for Part A and/or Part B during the first 3 months of your Initial Enrollment Period, in most cases, your coverage starts the first day of your birthday month. However, if your birthday is on the first day of the month, your coverage will start the first day of the prior month.

If you enroll in Part A (that you have to pay for) and/or Part B the month you turn 65 or during the last 3 months of your Initial Enrollment Period, the start date for your Part B coverage will be delayed.”

Age 66 to 67: Full retirement age for Social Security

The amount of your Social Security benefit is based in part on when you start taking them. To get your full benefit — meaning an un-reduced benefit — you need to reach your full retirement age before claiming.

That age target depends on when you were born. Here’s a summary from the Social Security Administration:

  • If you were born in 1943-1954: Your full retirement age is 66
  • 1955: 66 and 2 months
  • 1956: 66 and 4 months
  • 1957: 66 and 6 months
  • 1958: 66 and 8 months
  • 1959: 66 and 10 months
  • 1960 and later: 67

Age 70: Maximum Social Security benefit

You also can wait until after your full retirement age to claim Social Security — until as late as age 70 — and receive a permanently higher benefit as a result.

As we explain in “7 Reasons You Should Not Claim Social Security Early,” delaying until age 70 results in receiving your maximum possible benefit — more than the benefit you’d get at your full retirement age.

Beyond age 70, there’s no further benefit increase possible.

Age 70½ or 72: Required minimum distributions

Required minimum distributions (RMDs) are a minimum amount of money that you generally must withdraw from most types of retirement accounts each year, starting the year you reach a certain age.

A federal law last year changed that age to 72, though it remains 70½ for some people, as we detail in “Big Changes Coming to Retirement Accounts Under New Law.”

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