The best retirement plans will begin early in a person’s career and continue past your working years. Awareness of important milestone ages along the way can help avoid potential pitfalls and pave the way for a happy and productive retirement.
In our 20s, the distant idea of retirement competes with other financial obligations of career and family. It can leave us feeling spread too thin financially and retirement savings becomes easy to put on hold. The most important reason to begin saving early for retirement is compound interest. Time is your greatest ally at this age. Making retirement savings a priority early in your career will have a substantial, positive impact on the financial risks of inflation, increasing health care costs, and outliving your savings in retirement.
Important considerations in the middle portion of our working years are contribution limits and early withdrawal periods. “Catch-up” provisions begin at age 50. The 2014 annual contribution limit for pre-tax retirement savings plans, like SoonerSave, increases from $17,500 to $23,000 with catch-up. That is an additional $5,500 that can be invested and benefit from compound interest. Those over 50 can also contribute an additional $1,000 annually in a Traditional or Roth IRA ($6,500 for 2014).
If you retire early, you should be aware of the early withdrawal penalty for people younger than age 59½. The 10% penalty applies to early distributions from an individual retirement account (IRA), 401(k), 403(b), or other qualified retirement plan before reaching age 59½.
Social Security -
Normal Retirement Age
|Year of Birth
|1937 and prior
||65 and 2 months
||65 and 4 months
||65 and 6 months
||65 and 8 months
||65 and 10 months
||66 and 2 months
|66 and 4 months
||66 and 6 months
||66 and 8 months
||66 and 10 months
|1960 and later
Baby boomers born in 1950 reach age 66 in 2016, which is the full retirement age with Social Security for anyone born between 1943 and 1954. Social Security provides several options to begin drawing benefits: early retirement starting at age 62, normal retirement based on your date of birth, or delayed benefits up to the age of 70.
As with any type of early benefit, electing early Social Security benefits will result in a permanently reduced benefit. You can avoid the early reduction by electing benefits at your Social Security full retirement age, or increase your Social Security benefit by 8% per year for each year you delay claiming up until age 70. There are no additional benefits to delaying Social Security payments after age 70. For more information, visit Social Security online at www.ssa.gov.
Medicare eligibility begins at age 65. Regardless of your work status, you need to contact the Social Security administration three months before you reach age 65. Signing up right away can help you avoid increased Medicare Part B premiums.
Required Minimum Distribution (RMD) refers to the amount that qualified pre-tax retirement savings plan participants must begin taking a distribution from their retirement accounts by April 1 following the year they reach age 70½. RMD amounts must then be distributed each subsequent year. Your plan administrator should notify you in writing of the amount and date by which this distribution needs to occur. Make sure to stay vigilant of the Required Minimum Distribution deadlines, as to avoid the 50 percent penalty accessed to those who fail to take the required disbursement.
The last number is a little harder to nail down – how long will you live? Most people underestimate how long they need to plan on living, and so run the risk of running out of resources in retirement. The average life expectancy for a man reaching age 65 would be another 19 years and 21 years for a woman. Many experts recommend on planning for at least 10-15 years past the average. Visit the life expectancy calculator at www.livingto100.com to get a better idea of how long you should plan on living in retirement.
This article was first published in the Summer 2014 edition of the Retiring Right
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Posted on Wed, June 1, 2016
by Matthew Kesser