Happy birthday to you!
What do birthdays mean as we get older?
Well, if you aren’t a kid any more — and the years are really adding up — you might not feel like throwing a party.
But I’m here to tell you, there’s reason to celebrate! Certain birthdays mark important milestones on the road to retirement. Let’s take a look at a few:
Turning 50 is an important birthday because you become eligible for catch-up contributions to retirement savings accounts. For 2016, 401(k) contributions are capped at $18,000 for younger workers, but those age 50 and older can contribute an additional $6,000. For IRAs, younger workers can contribute $5,500, while older workers can save an additional $1,000.
At age 55, you’re considered a senior citizen. While the fact may make you feel old, it’s actually a good thing.
You’re eligible for many senior citizen discounts at restaurants, grocery stores and retailers.
Also, if you leave your job in the calendar year you turn 55 or later, you can withdraw money from your 401(k) without having to pay a penalty.
Keep in mind, however, that you’ll still have to pay taxes on the money you withdraw.
Age 59 1/2 is the standard age at which you can withdraw money from your retirement accounts without paying a penalty to the IRS, even if you’re still working. This includes 401(k)s and IRAs.
At age 62, you’re eligible to start collecting Social Security benefits. However, you might not want to. Your benefit will grow each year you wait to file until age 70 (more on that later).
This is your first year of Medicare eligibility. It’s also considered “full retirement age” by many employers (but not by Social Security).
Start planning for Medicare before your birthday; you need to apply three months before you turn 65.
Medicare is the primary source of health coverage for retirees. However, it won’t cover all of your medical expenses.
You’ll likely still want to consider employer-sponsored plans, Medigap and/or long-term care insurance.
66 or 67
Depending on the year you were born, you’ll hit full retirement age for Social Security at age 66 or 67.
Remember, though, your benefit will increase 8 percent each year you continue to wait until age 70.
How do you know your full retirement age? If you were born between 1943 and 1955, your full retirement age is 66.
If you were born between 1955 and 1960, your full retirement age is 66 plus an increasing number of months.
If you were born after 1960, your full retirement age is 67. See ssa.gov/planners/retire for more details.
Once you’ve hit age 70, there’s no reason to delay claiming Social Security benefits. You can wait as long as you want, but your benefits won’t increase.
At age 70 1/2, you’re required to start taking distributions from your retirement accounts.
Based on IRS life-expectancy tables, you can calculate how much you’ll need to withdraw at age 70 1/2 and each year beyond that.
Those are your required minimum distributions or RMDs. They don’t apply to Roth IRAs or other Roth accounts.
Not all of these ages are significant for every person. But every person should have a plan for key retirement milestones.
I recommend sitting down with a trusted financial professional to figure out which ages are most important to you.
Skip Johnson is an advisor and partner at Great Waters Financial, a financial planning firm and Minnesota insurance agency in New Hope. Skip also offers investment advisory services through AdvisorNet Wealth Management, a registered investment advisor.