The road to retirement is a long one, and as with any journey, it helps to have a few key milestones along the way to help gauge your progress. While your individual retirement plan and goals will be unique to your income, family situation, and desired lifestyle, most Americans share a number of common retirement milestones.
Here are several key milestones to consider as your plan for retirement:
Age 21 to 49: Make savings a habit
The key to having a comfortable retirement is by saving as much as possible as early in your career as possible. Time, tax breaks, and compounding interest all add up, and by getting into the habit of saving when you are young, it will be exponentially easier to reach vital retirement goals as you get older. With this in mind, one of the most important things you can do at this age is to take full advantage of employer-sponsored retirement accounts, such as 401(k)s, 403(b)s, IRAs and other tax-advantaged plans, especially if your employer offers a match.
Age 50: Catch-up contributions begin Once you reach 50, you are likely in your peak earning years, so you should be maxing out your contributions to tax-advantaged retirement accounts. To help you achieve this, the IRS allows those age 50 and older to make an extra annual “catch-up” contribution.
Age 59 1/2: Penalty-free retirement account withdrawals begin
This is the age when you can begin taking withdrawals from your retirement account, such as a 401(k), 403(b), and IRAs, without the 10% early withdrawal penalty. While you are free to make penalty-free withdrawals from your retirement account starting at this age, you are not required to make any withdrawals until age 72.
Age 62: Social Security eligibility begins
This is the earliest age you can begin claiming Social Security retirement benefits. However, if you take Social Security early, your monthly benefit will be reduced by as much as 30%, depending on your date of birth. Conversely, your benefit amount increases each year until you start claiming benefits, or when you reach age 70, whichever comes first.
The age at which you are eligible for 100% of your Social Security benefit is known as your full retirement age. The full retirement age used to be 65, but in 1983, the law changed and gradually pushed the full retirement age up to 67, depending on the year you were born.
Age 64 3/4: You can enroll in Medicare
You can enroll in Medicare at any point during the seven-month period that begins three months before the month you turn 65. Medicare is our government’s basic health insurance program for those age 65 or older.
Age 65: Medicare begins and you can enroll in Medigap
If you enrolled in or are receiving Social Security, you qualify for Medicare coverage on the first day of the month in which you turn 65, regardless of whether or not you are retired. On that same day, the six-month enrollment window for the Medicare supplemental insurance known as Medigap also begins. Medigap is private insurance that helps you cover a portion of the out-of-pocket copays and deductibles of traditional Medicare.
If you plan to continue working after age 65 and are covered by your employer’s health insurance plan (or your spouse’s), speak with the employer and your benefits coordinator to see how signing up for Medicare would affect that coverage.
Age 70: File for Social Security, if you haven’t already As mentioned earlier, the longer you wait to claim Social Security between your full retirement age and age 70, the higher your benefits will be. In fact, your benefits increase by 8% for each year you wait between your full retirement age and 70. But once you reach 70, your benefits no longer increase, so don’t put off filing for Social Security past this age.
Age 72: Required minimum distributions (RMDs) begin
Once you reach 72, you are required by law to begin taking distributions from tax-deferred retirement accounts, such as a 401(k), 403(b), and traditional IRA. These are known as required minimum distributions (RMDs), and your first distribution must be taken by April 1 of the year you turn 72. Thereafter, annual withdrawals must be taken by December 31 of each year.
Start Planning For Retirement Now & Consider Creating a Work-Until-You-Die-Happy Plan
While all of these recommendations relate to you saving enough for retirement, your best bet to ensure your retirement years are as plentiful as possible is to create a reality with your work life that you never have to retire from. Instead, consider how you can invest in education and training that will support you to happily contribute your skills and continue to get paid through the rest of your life.
Consider What’s At Stake When preparing for your senior years, it’s not enough to simply hope for the best. You should treat retirement planning as if your life depended on it—because it does. Without an effective plan, you risk a future of poverty.
While the best way to ensure a comfortable retirement is to start planning (and saving) as soon as possible, it’s also critical to seek the guidance and support of professionals, who can help you develop strategies to maximize your investments and savings, while minimizing taxes and avoiding common pitfalls. At Truest Law, we will educate and empower you to choose the most effective planning strategies to ensure your journey to retirement is as smooth as possible. And if you need help finding a financial advisor, we will introduce you to the experienced professionals we trust most. With their support and ours, you will have peace of mind that you and your family will be well-protected and well-planned for no matter what. Contact us today to get started.