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Benchmarks in retirement start at 50

Benchmarks in retirement start at 50

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Benchmarks in retirement start at 50

As you add birthdays your retirement planning possibilities change. You can save more in an employer sponsored retirement plan or Roth IRA at age 50 than age 49. Your age will also change the tax rules if you want to tap into tax deferred funds. At 60, you may avoid a tax penalty that will cost you at age 59.

Here is a look at years in your life that change retirement planning:

Age 50

If you will turn 50 by the end of the year, you can start making catch-up contributions to a retirement plan (such as a 401(k) or IRA). Catch-up contributions begin after contributions exceed the annual deferral limit, the employer plan's deferral limit, or the annual Actual Deferral Percentage limit for Highly Compensated Employees.

For example, in 2015 the limit for elective deferrals in a 401(k) is $18,000. Those who qualify for catch-up contributions can put an additional $6,000 (for a total of $24,000) in their retirement account. The amount is the same for a 403(b), SARSEP or 457(b) plan. For a Roth IRA, the catch-up amount in 2015 is $1,000 for a total maximum investment of $6,500.

At age 59½

If you celebrate your half birthdays, then 59½ will bring you the chance to withdraw money from tax deferred retirement accounts, like a 401(k), without incurring an additional 10 percent tax penalty. Withdrawals will be taxed at your current income level. Also, if you are trying to withdrawal the money from an employer’s plan and are still working for that company, there may be fees involved.

Early Retirement: Lost Benefits

Social Security is available at age 62. If you take it before full retirement age (FRA) this is what your benefit amount will decrease per $1,000 depending on months before FRA.

BORN FRA MONTHS REDUCTION
1943-54 66 48 $750
1955 66, 2 mo. 50 $741
1956 66, 4 mo. 52 $733
1957 66, 6 mo. 54 $725
1958 66, 8 mo. 56 $716
1959 66, 10 mo. 58 $708
1960-later 67 60 $700

SOURCE: SSA.gov

At age 62

The minimum age to receive Social Security benefits is age 62. If you were born between 1943 and 1954, you will receive 75 percent of the monthly benefit because you will be getting benefits for an additional 48 months.

At age 65

At age 65, you are eligible for Medicare. There are four parts to Medicare that provide insurance for impatient care, health care providers, and prescription drugs.

If you elect to receive Social Security benefits at this age and were born between 1943 and 1954, you will receive 93.3 percent of the monthly benefit because you will receive 12 months of benefits before your full retirement age of 66.

At age 66

Eligible for full Social Security benefits if born between 1943 and 1954. The full retirement age for those born between 1955 and 1959 is as follows: 1955 (66 and 2 months), 1956 (66 and 4 months), 1957 (66 and 6 months), 1958 (66 and 8 months), and 1959 (66 and 10 months).

At age 67

Eligible for full Social Security benefits if born after 1960 … at least for now. Expect changes in future years as life expectancies continue to climb and the ability of the current system to provide decreases. In fact, some possible age limit changes have been discussed by the federal government.

At age 70½

If you have not taken a withdrawal from your IRA, employer sponsored retirement plan or other defined contribution plan by April 1 of the year following the calendar year in which you reach age 70½, you could be in line to pay a 50 percent  excise tax.

Are you still with us? Let’s break this down.

First, let’s determine the date you need to do this with a couple of examples. For both examples assume you are retired.

The first person celebrates their 70th birthday on June 30, 2013 and turns 70½ on December 30, 2013. This person needs to take their first required minimum distribution (RMD) by April 1, 2014 for 2013.

The second person celebrates their 70th birthday on July 1, 2013 and turns 70½ on January 1, 2014. This person needs to take their first required minimum distribution (RMD) by April 1, 2015 as their clock does not start until 2014.

Because these funds were tax deferred in the contribution cycle, the RMDs will be subject to income tax. In the second person example, while the person is not required to take that first distribution until April 1, 2015, they will have to make another distribution withdraw by Dec. 31, 2015 and by Dec. 31 for each other the subsequent years. To avoid paying taxes on two withdrawals, the second person could have taken the first withdrawal by Dec. 31, 2014 and then take the second withdrawal by Dec. 31, 2015.

LINKS

Possible Social Security age limit changes

Check if you are eligible for Medicare or your Part B premium

Wharton-Penn life expectancy calculator

 

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