When do you plan to retire? Your decision will be affected by many personal and financial factors, including what you do (or don't do) today! Preparation and periodic review of your financial situation and retirement goals will help you make the best decisions on certain retirement milestone dates — like the ones listed below.
1. Today – What better time to evaluate your retirement plans than today? Do it now, before any of a hundred daily distractions take your attention away from this important task. Start by using the MoneyTips Retirement Calculator and see if you are financially on track to meet your retirement goals. If not, try different scenarios to set new targets and get you back on the right path.
2. Age 59-1/2 – This is the first age where you can take funds out of your IRA and 401(k) without early withdrawal penalties. Generally, it is best to let your retirement funds grow beyond the initial withdrawal period — but that depends on your personal situation. Unemployment or unexpected financial situations may make it reasonable to start withdrawals early.
3. Age 62 – You can file for Social Security benefits beginning at age 62 — but you probably shouldn't. Filing before your full retirement age (FRA) causes a reduction in benefits of 6.67% for up to three years, and then 5% beyond that until you reach FRA. For example, if your FRA is 67 (see numbers 5 and 6 below), filing at 62 means your benefits are cut by 30% for all years that Social Security is drawn.
4. Age 65 – You haven't reached FRA yet for Social Security filing, but you do become eligible for Medicare — and you need to apply during your initial enrollment period (plus or minus three months from the month that you turn 65). If you fail to sign up, your Part B premium may increase by 10% and continue to do so for every 12 months that you fail to enroll.
5. Age 66 – If you were born before 1955, you will reach full retirement age (FRA) at 66. Those born from 1955 to 1959 reach FRA between ages 66 and 67. Once you reach FRA, you can file for Social Security and claim full retirement benefits. You can also choose to delay filing for benefits and gain an extra 8% in annual benefits for each year that you delay your filing.
6. Age 67 – For those born in 1960 or later, the FRA is 67 years. The same rules apply on filing for benefits or delaying them to receive extra benefits. All the increases that you accumulate by delaying your filing apply for as long as you receive Social Security benefits.
7. Age 70 – If you haven't filed for Social Security yet, there's no reason to delay beyond age 70. Waiting beyond age 70 does not earn any extra benefits. Meanwhile, If you have a traditional IRA or 401(k) retirement fund and have not taken any withdrawals out of it yet, you will generally need to start taking out minimum withdrawal amounts (based on your expected lifespan) by April 1 of the year after you turn 70-1/2.
If you are fortunate enough to have a healthy IRA or 401(k) along with significant Social Security benefits, you may want to take out a portion of the retirement funds strategically before minimum withdrawals apply. It all depends on your tax bracket and income at various stages. Consult a tax professional if that situation applies to you.
Regardless of when — or if — you decide to retire, it's wise to review your retirement plans periodically as life circumstances change. You do not even need to wait until the milestone ages listed above. Adjust your retirement plans occasionally before retirement in order to avoid unpleasant adjustments after retirement.
Let the free MoneyTips Retirement Planner help you calculate when you can retire without jeopardizing your lifestyle.