Effective retirement planning involves years of savings to accumulate benefits to use throughout your retirement years. The government promotes tax advantaged retirement savings for both companies and individuals; but it has rules you must follow. It prescribes key ages - to frustrate early use of those retirement savings and then forces their use during retirement years. Social Security and Medicare programs also have their key ages. Being aware of these ages are critical to your retirement planning.
The table lists the key ages, what each means, and a quick comment. Refer to it as I comment further below.
The earlier you can begin your retirement planning, the better. But in case you get a late start you can contribute a little more - called 'catch-up' contributions - when you reach 50 years old. Keep current each year for increases in both the regular and catch-up amounts.
To frustrate early withdrawal of retirement savings, there is a 10% penalty on what you withdraw. And that's over and above the income taxed imposed. Typically, this penalty is applied up until you're 59½. But the government has lowered that age to 55 for just those laid off from work so they can access their company plan benefits. Sound retirement planning will have you avoid use of your tax -deferred accounts prior to these ages.
Sixty-five has long been the official retirement age for business, Social Security, and Medicare benefits. It still is for Medicare eligibility, but to alleviate possible insolvency with the Social Security system, the full retirement age (FRA) has been slowly increased to 67 depending on the year in which you were born. Therefore, your retirement planning should attempt to avoid tapping reduced social security benefits at age 62 and hopefully have your inception of the larger benefits start at full retirement age.
You can get Social Security benefits earlier, but at a reduction from your FRA benefits. This reduction increases for each month you begin benefits before your FRA. On the other hand, you're rewarded by increasing your FRA benefits for each month you delay your benefits beyond your FRA. However, no additional benefit is given for waiting beyond age 70.
Lastly, the government wants the tax money for all that 'untaxed' retirement plan money you've saved. So when you turn 70½, they expect at least a minimum required distribution (MRD) from your plans annually which is taxable income to you. Otherwise you'll be penalized for what you didn't withdraw of that MRD. Make sure that your retirement planning takes into account your tax bite on these retirement plan distributions.