We tend to think of retirement as a single date marked on the calendar, perhaps celebrated with a small party. But for the federal government, retirement is more complicated. You need to reach certain ages before you can unlock benefits like Social Security, Medicare, and even penalty-free access to retirement funds.
Here are six such milestones that everyone should mark on their calendars even if they don’t plan on retiring for a while.
1. Age 50: You become eligible for recovery contributions
Adults aged 50 and over can pay recovery contributions to their retirement accounts. These vary by account type. In 2022, seniors can contribute up to $ 6,000 more for their 401 (k) s and $ 1,000 more for their IRAs, bringing their annual contribution limits to $ 27,000 and $ 7,000, respectively.
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You don’t have to wait until your birthday has passed before you start making these contributions. As long as you are 50 or older by the end of the year, you are good to go.
2. Age 59 1/2: Retirement withdrawals can be made without penalty
Before 59 1/2, it is difficult to withdraw funds from your retirement accounts without paying a 10% prepayment penalty. There are exceptions for Roth IRA contributions because you have already paid taxes on these. And you can also leverage your retirement savings early if you have large medical bills, are paying for higher education, or are buying your first home, among other things.
But if you don’t qualify for one of these exceptions, you’ll pay a fee to access your retirement funds. While many retire after this age, those who intend to retire earlier will have to put money aside in a taxable brokerage account or savings account that they can access at any time.
3. Age 62: You become eligible for Social Security benefits
Seniors can apply for Social Security as early as 62 if they wish, but doing so will reduce the amount of their benefits. If you sign up as soon as you become eligible, your checks will be up to 30% less than your primary insurance (PIA) amount, the full benefit you qualify for based on your work history.
It can be smart to apply for Social Security early if you have a terminal illness or medical history that leads you to believe you won’t live long. Some people even decide to apply early because they need the extra help provided by their benefit checks to stay on track with their bills.
4. Age 65: You become eligible for Medicare
Seniors become eligible for Medicare at age 65. Before this age, they will have to rely on an employer’s health insurance or a private health insurance policy.
Once you’ve registered, the federal government takes the cost of Medicare Part B premiums from social security checks if you’re already applying for them. If not, you will receive an invoice for the premium costs.
5. Age 66 or 67: Reach your full retirement age
Full Retirement Age (FRA) is the age at which you become eligible for your PIA based on your work history. Claiming before you reach this age reduces your allowances, while delaying benefits beyond this age increases them. Some people choose to sign up for their FRA as a middle ground between requesting early and requesting late.
Your FRA depends on your year of birth. For those born between 1943 and 1954 there are 66. Then it rises by two months each year until it reaches 67 for those born in 1960 or later.
6. Age 70: You qualify for the maximum Social Security benefit
Every month you postpone Social Security increases your benefit to age 70. People who expect to live to 80 or beyond and can finance their retirement up to this point on their own may choose to delay benefits for up to 70 years in hopes of securing a longer life benefit. But since they are receiving fewer checks over their lifetime, it takes some time for the higher payments they receive to rise before the total amount received begins tipping these latecomers.
Keep these dates in mind as you approach retirement and try to prepare in advance. Thinking about when you plan to apply for Social Security and how you will finance your retirement at each stage can help you avoid surprises later on.
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