Most children stop being “and-a-half” somewhere around age 12. Kids add “and-a-half“ to make sure everyone knows they’re closer to the next age than the last.
When you are older, “and-a-half” birthdays start making a comeback. In fact, starting at age 50, several birthdays and “half-birthdays” are critical to understand because they have implications regarding your retirement income.
At age 50, workers in certain qualified retirement plans are able to begin making annual catch-up contributions in addition to their normal contributions.
Those who participate in 401(k), 403(b), and 457 plans can contribute an additional $6,500 per year in 2022. Those who participate in Simple Individual Retirement Account (IRA) or Simple 401(k) plans can make a catch-up contribution of up to $3,000 in 2022. And those who participate in traditional or Roth IRAs can set aside an additional $1,000 a year.1,2
At age 59½, workers are able to start making withdrawals from qualified retirement plans without incurring a 10% federal income-tax penalty. This applies to workers who have contributed to IRAs and employer-sponsored plans, such as 401(k) and 403(b) plans (457 plans are never subject to the 10% penalty).
Keep in mind that distributions from traditional IRAs, 401(k) plans, and other employer-sponsored retirement plans are taxed as ordinary income.
A Note About Social Security
Even if you are eligible for Social Security starting at age 62 or beyond, it may not be the best strategy to start benefits right away. For many, deferring claiming Social Security until age 70 is a better strategy to maximize their payments throughout retirement.
At age 62 workers are first able to draw Social Security retirement benefits. However, if a person continues to work, those benefits will be reduced. The Social Security Administration will deduct $1 in benefits for each $2 an individual earns above an annual limit.
In 2022, the income limit is $19,560.3
At age 65, individuals can qualify for Medicare.
The Social Security Administration recommends applying three months before reaching age 65. According to Medicare.gov, “Generally, you're first eligible to sign up for Part A and Part B starting 3 months before you turn 65 and ending 3 months after the month you turn 65. (You may be eligible for Medicare earlier, if you get disability benefits from Social Security or the Railroad Retirement Board.)” It’s important to note that if you are already receiving Social Security benefits, you may have automatically been enrolled in Medicare Part A (hospitalization) and Part B (medical insurance) without an additional application, but you should verify this with your personal agent.4 If you miss applying for Medicare during your enrollment period, you may be subject to a penalty that could stick around for years.
Age 65 to 67
Between ages 65 and 67, individuals become eligible to receive 100% of their Social Security benefit. The age varies, depending on birth year. Individuals born in 1955, for example, become eligible to receive 100% of their benefits when they reach age 66 years and 2 months. Those born in 1960 or later need to reach age 67 before they’ll become eligible to receive full benefits.5
At Age 70, individuals who have delayed filing for Social Security benefits are eligible to receive the maximum Delayed Retirement Credit (DRC), which is an increased monthly benefit above your Full Retirement Age (FRA). For workers whose FRA is age 67, and delay filing for Social Security benefits to age 70, would receive a 24% increase to their monthly benefit.
In most circumstances, once you reach age 72, you must begin taking required minimum distributions from a traditional Individual Retirement Account and other defined contribution plans. You may continue to contribute to a traditional IRA past age 70½ as long as you meet the earned-income requirement.
Understanding key birthdays may help you better prepare for retirement income and understanding potential benefits. But perhaps more importantly, knowing key birthdays can help you maximize your benefits and avoid any date-specific penalties.
If you are coming up on a milestone and want to discuss the actions you should take, or if you have any questions about these milestones, let us know!
Sources and Footnotes:
1. If you reach the age of 50 before the end of the calendar year.
2. IRS.gov, 2022
3. SSA.gov, 2022
4. SSA.gov, 2022. Individuals can decline Part B coverage because it requires an additional premium payment.
5. SSA.gov, 2022
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The content of this letter does not constitute a tax or legal opinion. Always consult with a competent professional service provider for advice on tax or legal matters specific to your situation. To the extent that a reader has any questions regarding the applicability of any specific issue discussed in this content, he/she is encouraged to consult with the professional advisor of his/her choosing.
Published for the blog on August 30, 2022 by Searcy Financial Services, your Overland Park, Kansas Fee-Only Financial Planner and Investment Manager.