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Your Relationship With Money: Important Ages to Keep in Mind

If you thought milestone birthdays only happened at 18 and 21, then at 30, 40, 50 and so on, you’d be wrong. When it comes to financial planning and saving for retirement, there are quite a few other extremely important milestone ages, along with limits, rule changes and other differences to keep in mind.

At Foran Financial Group, we work with clients at all stages of their financial journey, whether they’re just getting started, are somewhere in the middle of their career or are looking closely at retirement. Depending on where you’re at in your financial journey, your relationship with money will change. Your key priorities will shift and your focus will readjust.

Despite the differences, we’re commonly asked the same question: “What should I be doing now?”

To answer this question, let’s take a look at some important ages.

 

It’s never too early to start planning for the future. Contact Foran Financial Group and get the conversation started.

 

At Age 50: You Can Increase Your Retirement Contributions

Retirement planning is important at any age, but at age 50, you are able to increase the amount of money you invest toward this time in life.

You can contribute a maximum of $19,500 to your 401(k) plan annually, and when you turn 50, you can begin making catch-up contributions up to an additional $6,500 a year, for a total of $26,000 a year.

If you have an IRA, you can contribute up to $6,000 a year, plus an extra $1,000 catch-up contribution, for a total of $7,000 a year.

Another thing to think about when you turn 50 may be reducing your investment risk. The closer you get to your target retirement date, the less time you’ll have to recoup any major financial losses. For this reason, your relationship with money changes. This is the time to talk with your financial advisor about possibly scaling back stocks and other investments that may have historically high returns but also carry high risk.

Age 50 is also a good time to talk to a financial advisor about healthcare retirement planning. Statistics show you’ll need about $285,000 to cover healthcare expenses during your retirement years, and with healthcare costs perennially on the rise, that figure will likely increase.

At Age 55: The Rule of 55 Kicks In

If you leave your job any time after the day you turn 55, whether you quit, are laid-off or get fired, the IRS Rule of 55 allows you to take withdrawals out of a qualifying 401(k) plan from your most recent job without incurring the 10 percent early withdrawal penalty. You will, however, still have to pay the traditional income tax on each distribution.

This rule does not apply to IRAs.

Keep in mind that just because you can take withdrawals at this time, doesn’t necessarily mean you should. Discuss your situation with a financial advisor before making a decision that can have long-term effects on your future.

At Age 59-½: IRA Withdrawal Penalties End

There are exceptions to this rule, but generally speaking, to avoid penalties, you have to wait to take any withdrawals from a 401(k) or an IRA until you are 59-½. Before this age, you are subject to a 10 percent penalty imposed by the IRS.

At Age 62: You Can Start to Take Social Security 

When you turn 62, you’re eligible to begin receiving Social Security benefits. However, if you start collecting now, your payments will be about 30 percent lower (for the rest of your life) than if you waited until your full retirement age.

Another important consideration: If you continue working before your full retirement age but after you’ve begin receiving Social Security, your benefits will be reduced by $1 for every $2 in income you earn over $18,240 per year.

For more on how to take Social Security, download our complementary eBook: How to Maximize Your Social Security Benefit.

At Age 65: You’re Eligible for Medicare

At 65, you become eligible for Medicare coverage. This is an especially important milestone, because if you don’t sign up on time (the window is three months before your birthday and three months after) your Medicare Part B monthly premiums will permanently increase. Exceptions to this are if you are still working and have a certain type of group healthcare plan, or if you’re covered by a spouse who is still working and has group health insurance from his or her employer. However, it bears mentioning that you must still enroll in Medicare within a designated amount of time after leaving these group health plans, or you will still be on the hook for the lifetime Medicare B premium penalty.

At Age 66 or 67: You Reach Full Retirement Age for Social Security

If you were born between 1943 and 1954, 66 is considered your full retirement age, when you’re eligible for your full Social Security benefits. If you were born between 1955 and 1959, your full retirement age falls somewhere between age 66 and 2 months and 66 and 10 months, respectively. For those born in 1960 or later, your full retirement age is 67.

At Age 70: You Have to Begin Taking Social Security

After you become eligible to begin collecting Social Security, if you delay claiming the benefits, your payments (when you do begin claiming them) will increase by 8 percent for each year you defer. This bonus ends when you reach age 70, after which there’s really no benefit to wait on receiving your Social Security.

At Age 70-½ or 72: Now You’re Required to Take RMDs

Required Minimum Distributions (RMDs) are the minimum withdrawals that a retirement account owner must take each year. Before January 1, 2020, the age to start taking RMDs was 70-½. But the SECURE Act of 2019 increased this age to 72.

Now, by April 1 of the year after you turn 72, you must begin withdrawing a minimum amount from your 401(k) or Traditional IRA each year for the rest of your life. Remember that this means you will also be paying the resulting income taxes.

If you fail to take this minimum amount, you face a pretty heft penalty – 50 percent of the amount you should have withdrawn from your account. After your first year of taking RMDs after your 72nd birthday, annual withdrawals must be taken by Dec. 31 each year.

If you’re still working and have a 401(k) with that company, you’re exempt from having to take RMDs, as long as you remain actively working, and as long as you don’t own the company.

Talk with your financial advisor about ways to use these withdrawals without entering a higher tax bracket.

Important at Any Stage

It’s important to note that the numbers above are based on 2020 IRS statutes. The limits, minimums and, in some cases, even the ages may shift over time as the IRS makes changes to its directives. To be sure you’re following the rules and maximizing your retirement contributions and investments, it’s wise to consult with a financial advisor for guidance.

As your life unfolds – and your relationship with money surely changes – it’s wise to review your plan on a regular basis to make sure you’re still on track to reaching your future goals.

If you’re not sure where to start, contact us. Foran Financial Group offers personalized, intensive financial planning and full-service wealth management in a personal, supportive environment. Our multi-generational planning and investment team has helped hundreds of families pursue and maintain greater financial confidence. Learn how we can help you too.

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