There are milestones as you approach retirement too. And while reaching your full retirement age may not be as exciting as cashing your first paycheck, knowing what to expect can help you prepare for the long term.
Use these 8 milestones to help guide you into retirement:
Age 59½: Withdraw from your traditional IRA without penalty
After you reach age 59½, you can take a withdrawal from your traditional IRA without being subject to a 10% early withdrawal penalty.* You’ll still owe ordinary income tax on withdrawals of all traditional IRA earnings and on any contributions you originally deducted from your taxes.
Age 62: Claim reduced Social Security benefits
You can claim Social Security benefits as early as age 62. However, you’ll have to pay a penalty for collecting your benefits before you’ve reached full retirement age (the age at which you’re first eligible to receive your full benefit amount).
If you begin collecting Social Security before you reach full retirement age, expect a 6% reduction in your payments each year. For example, if your full retirement age is 67 and you start collecting Social Security at 62, you’ll receive about 30% less than if you’d waited until 67.
Age 64¾: Enroll in Medicare
Administered by the federal government, Medicare is a national health insurance program for people age 65 or older.**
The initial Medicare sign-up window begins when you’re 64 years old—3 months before the month of your birth. This period lasts for 7 months. If you miss it, you may have to pay higher premiums for life, or you may be denied certain coverage. (If you still have medical insurance through an employer, including your spouse’s employer, you can postpone your Medicare enrollment until that coverage ends without penalty.)
Many people enroll in traditional Medicare, which has 3 parts:***
Part A: Pays for inpatient hospital care.
Most people get Part A hospital insurance at no cost when they turn 65. (You automatically qualify if you’re eligible for Social Security retirement benefits.)
Part B: Pays for doctor visits and outpatient care.
Part B is optional. Almost anyone eligible for Part A can sign up for Part B medical insurance, but it’s not free. The monthly premium varies by income.
Part D: Pays for prescription drugs.
Anyone who has Part A or B can sign up for Part D prescription drug coverage. It’s optional, and it’s not free. As with Part B, the premium varies by income.
Individuals enrolled in traditional Medicare (Parts A, B, and D) can also enroll in a supplemental plan called Medigap, which helps pay for health care costs that Medicare doesn’t cover, such as copays, coinsurance, and deductibles.
Medicare Part C, also known as Medicare Advantage, is an all-in-one alternative to original Medicare that bundles Part A, Part B, and usually Part D. Private insurance companies offer Medicare Advantage plans, which may include dental, hearing, and vision coverage in addition to in- and outpatient hospital care, prescription drugs, and doctor visits. You pay a premium for coverage, but most plans cap your out-of-pocket expenses.
Age 65: Medicare begins
You qualify for Medicare on the first day of the month in which you turn 65. If you’re still working, you can delay enrollment (without penalty). If you collect Social Security benefits before you turn 65, you’ll be automatically enrolled in Medicare Part A and B when you turn 65.
Age 66–67: Reach Social Security full retirement age
Your Social Security retirement age is the age at which you qualify for full benefits. Even though your payments are penalty-free after you reach full retirement age (and you can take reduced benefits starting at age 62), it may make sense to wait a few more years. If you defer claiming Social Security, your payment increases each month until you reach age 70.
Age 70: File for Social Security (if you haven’t already)
Don’t delay filing for Social Security benefits after you turn age 70. Once you’ve reached this milestone, your monthly payment amount won’t increase anymore.
Age 70½: Consider making a charitable contribution
If you’re age 70½ or older, you may be able to sell shares directly from your IRA to an eligible charity through a qualified charitable distribution (QCD). Unlike an ordinary distribution from a traditional IRA, a QCD isn’t taxable income.
Age 72: Begin taking required minimum distributions (RMDs)
If you turned 70½ in 2019 or before, you must take taxable withdrawals from your non-Roth IRA by April 1 the year after you reach age 70½.
Thanks to the SECURE Act, if you turn 70½ in 2020 or later, you have until April 1 the year after you reach age 72 to satisfy your RMD. (Every year thereafter, you’ll need to take your RMD by December 31.) If you don’t take your RMD on time, you could owe a penalty up to 50% of the amount you should have withdrawn.
The CARES Act provides a temporary waiver of RMDs for 2020. If you would have had an RMD obligation for 2020, you do not have to take your RMD for 2020 if you don’t want to.
Age is only a number
You can’t change your birthday. But you can control how much you save (and spend). Use our do-it-yourself tools to plan your retirement spending strategy or partner with an advisor to make your savings last.
*Exceptions to the 10% tax penalty include distributions made after death, after permanent and total disability, under a divorce agreement, and to pay unreimbursed medical expenses exceeding 10% of your adjusted gross income.
**In certain circumstances, you may qualify for Medicare at a younger age than 65.
***Alternatively, some people enroll in Medicare Part C, also known as a Medicare Advantage Plan. A Medicare Advantage Plan offers the basic coverage of Part A and Part B and often some extra services but with a limited number of health care providers.
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