You’ve been saving for years and you can see retirement down the road. What is your timeline? How does all this fit together?
Beyond the numbers, we find a successful retirement takes thoughtful planning. On a Sunday night, think about what you might do the next day if you were retired. What will get you up in the morning? How will you spend your day? Whom might you spend time with? What will you do to derive meaning out of your life? Will you work part-time, volunteer, or travel? Retirement can be a lonely or stressful transition when all of a sudden your days are wide open. Thinking about how you might handle that in advance could ease the transition. Once you have, the retirement timeline below may help.
Your 40s – Create a Financial Plan
We often see clients for the first time when their oldest child is a freshman in high school. All of a sudden, retirement is getting real. Are they saving enough? How does sending their child to college fit in with their own retirement plans? This is the time to create a financial plan to see how and what kind of school you can send your kids to and still be able to retire at a reasonable age. You might not want to send your child to the most expensive private school in your state only to find out afterwards you need to work to age 80. (For related reading see: Why Delaying College for Your Child's College Is a Bad Idea.)
Your 50s – Make Adjustments to Your Financial Plan
If you haven’t done a financial plan, now is the time. If you have done one, revisit your assumptions, update your goals and determine what you need to tweak. Do you need to save a bit more each year or pay off the house before retirement? Practice reducing your spending? Now is the time to make course corrections. Is everything looking good? Beyond the numbers, what will you be doing in retirement? Will it be more “work optional” and you still do some consulting?
Age 55 – Special Rules for Termination From an Employer
Many employers have special rules if you leave their employment after the age of 55. If so, you may be able to take distributions from their retirement account without penalty. You will always pay tax, but you can escape the 10% penalty you would pay with other plans for being under the age of 59.5. This doesn’t work if you were terminated before age 55 and just left your account there. It also doesn’t work if you roll the account to an IRA. (For related reading, see: How a 401(k) Works After Retirement.)
Age 59.5 – Retirement Account Withdrawals
You made it. You can take distributions from an IRA, Roth IRA, SEP IRA and SIMPLE plan without paying a 10% penalty. Left a 401(k), 403(b) or 457 at an old employer? You can take funds from that account as well without penalty. If you are still working for an employer, there are certain rules about withdrawals. You will want to check with your benefit department about how to get money out. But if you do take money out, there won’t be a 10% IRS penalty.
Age 60 – Social Security Survivor Benefit Can Start Now
Are you a widow or widower? If you take the benefit now, your payment will be permanently reduced. If your full retirement age (FRA) is 66, your payment will be 71.5% of the FRA benefit.
Age 62 – Eligible for Personal Social Security Payments
You will receive 70-75% of your FRA amount for starting Social Security at age 62 (depending on when you were born). This is a permanent haircut and will effect all future payments, so be thoughtful about the decision to take Social Security early. If you have other assets and your health is good, it might be better to wait to take your Social Security. Consult a financial advisor before making this permanent decision. (For related reading, see: Filing Early for Social Security: When It Makes Sense.)
Age 65 – Sign up for Medicare
The sign-up window for Medicare is three months before you turn 65 through three months after. With few exceptions, if you miss this window you are subject to a lifetime penalty.
Age 65-67 – Social Security Full Retirement Age (FRA)
If you were born in 1937 or earlier your FRA is 65. It increases to age 66 for those born between 1938 and 1954. For those born between 1955 and 1959, their FRA is 66 years and some months. If you were born in 1960 or later your FRA is 67. If you wait to start Social Security until age 70 your benefit increases 8% every year you wait.
Age 70 – Receive the Largest Social Security Benefit
If you haven’t started yet, start now and enjoy those bigger paychecks!
(For more from this author, see: Realistic Ways to Help Your Kid Pay for College.)
Investment Advisory services offered through Birchwood Financial Partners, Inc. an SEC Registered Investment Advisor.
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