Effective retirement planning involves years of savings to accumulate a nest-egg for your retirement yrs. The Congress, by way of tax laws, promotes tax advantaged retirement savings equally for businesses and individuals; but it has rules you need to follow. these tax laws prescribe key ages - to frustrate early use of those retirement savings and then forces their use throughout retirement yrs. Social Security benefits and Medicare programs also possess their critical ages. Simply being conscious of these ages is vital for your retirement planning.
The table included in this post lists the critical ages, what each means, and a quick comment. Consider it as I remark further below.
The earlier you can start your retirement planning, the better. However in the event you get a late start you are able to contribute a bit more - known as 'catch-up' contributions - when you reach 50 years old. Maintain current each year for increases in both the regular and catch-up amounts e.g. the annual IRA contribution limit for those under age 50 is $5,000, $6,000 for those age 50+).
To frustrate early withdrawal of retirement financial savings, there's a 10% penalty on what you withdraw. And that is over and above the tax imposed. Typically, this penalty is applied up until you're 59½. But the government has lowered that age to 55 for those laid off or retired from work so they can access their company plan benefits. Sound retirement planning will have you avoid utilization of your tax-deferred accounts before these ages. There are other exceptions to these withdrawal penalties.
Sixty-five has long been the standard retirement age for businesses, 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 based on the year in which you were born. Therefore, your retirement planning should attempt to avoid tapping decreased social security benefits at age sixty-two and hopefully have your inception of the larger benefits start at full retirement age. In fact, you can accumulate further delayed retirement credits for waiting longer.
You are able to get Social Security advantages earlier, as early as age 62, but at a reduction from your FRA amount. This reduction increases for each month you start benefits before your FRA. On the other hand, you're rewarded by growing your FRA benefits for each month you delay your advantages beyond your FRA. Nevertheless, no extra advantage is given for waiting beyond age 70.
Finally, the government wants the tax for all that 'untaxed' retirement plan cash you have saved. So whenever you turn 70½, they force at least an IRA minimum distribution (MRD - applies to qualified plans also) from your plans annually which is taxable income to you. Otherwise you will be penalized for what you did not withdraw of that MRD. Make certain that your retirement planning takes into consideration your tax bite on these retirement plan distributions.
Critical Ages for Your Retirement Planning
|50||Catch-up contributions Allowed||(2011) contribute extra :
1,000 for IRAs, and $5,000 for 401(k) and 403(b)
|55||Access to Company plan money without 10 % early withdrawal penalty||Only true for company plans
Must leave work
|59 1/2||Access to all retirement plans without 10 % early withdrawal penalty||Includes IRAs
But must hold Roth for at least 5 years
|60||Earliest that a widow (er) can begin collecting Social Security benefits||Survivor benefits are reduced
But if remarried before 60, survivor benefits are lost
|62||Earliest age anyone can begin collecting Social Security benefits||Reduced benefits from any Full Retirement Age benefits;
and 50% for spouse's entitlement
|63 1/2||Earliest to leave work and rely on COBRA to carry you to Medicare at 65||COBRA is good at any age but lasts for only 18 months|
|65||Earliest for Medicare eligibility
Most company pensions full benefits at this age
Full Retirement Age (FRA) for Social Security If born in 1937 or earlier
|Don't delay applying for Medicare
Full Retirement Age means full Social Security Benefits
|66||Full Retirement Age for Social Security benefits||if born later than 1937 and before 1960|
|67||Full Retirement Age for Social Security Benefits||if born in 1960 and later|
|70||Latest age to get extra benefit for delaying Social Security beyond your Full Retirement Age||Benefits are increased beyond FRA benefits on for each month delayed – up to age 70|
|70 1/2||Must begin withdrawing at least minimum required distribution (MRD) from all traditional IRAs
Must make withdrawals from all other employer qualified plans if retired
|Latest is withdrawal by following April 1 - but that means 2 MRDs for year;
No MRD for Roth IRA
For employer plan: no MRDs until actually retire