To make the most of your retirement benefits, including 401(k)’s, individual retirement accounts, Social Security and Medicare, you need to meet deadlines. Here is a quick guide to ages you’ll reach on the road to your retirement and what you need to know about each one.
Age 55: If you leave your job in the calendar year you turn 55 or later, you can withdraw money from the 401(k) retirement account associated with the job you most recently left without having to pay a penalty. To take advantage of this provision you must leave your funds in the 401k plan.
Age 59 1/2: You can withdraw money from your IRAs without paying a penalty to the IRS or Franchise Tax Board. You can make 401k withdrawals from all Company plans if you are retired. If you are still working you may not have the same access to the funds inside the 401k plan at your current company. Check with your 401k administrator to see if your plan allows them.
Age 62: You can sign up for Social Security benefits beginning at age 62, but payments are reduced by as much as 30% if you decide to claim benefits early. For example, if you’re eligible to receive a full retirement monthly benefit of $1,500 at age 66, at age 62 your benefit will be reduced by 25% to $1,125. Conversely, if you wait beyond your normal retirement age, your benefit will increase. More about that later.
Age 65: You are eligible for Medicare. Even if you don’t intend to file for Social Security benefits, in many cases you still need to apply for Medicare during a seven month window that starts 3 months before the month you turn 65, includes the month you turn 65 and ends three months after you turn 65. For every 12 month period you’re eligible for Medicare Part B and don’t sign up, your future monthly premium will increase by 10% unless you are working when you reach 65 and continue to receive health coverage through your employer or spouse’s employer. In this case the requirement to sign up for Medicare at 65 is waived.
Age 66 (or 67): Depending on the year you were born, most individuals’ full retirement age is between 66 and 67. As discussed, benefits decrease for each year you apply early and increase each year you delay collecting benefits beyond your full retirement age. For example, if your full retirement age is 66 and you wait to retire until 67, your benefit will increase by 8%. Waiting even longer may make sense because your benefit continues to increase by 8% for each year you delay your benefit up to age 70.
Age 70: There are no additional increases to your monthly Social Security benefit after you turn 70 other than a cost of living adjustment. At 70 ½ you must start taking distributions from your IRA and 401k retirement accounts. The minimum is based on the IRS’s life expectancy tables but you can always take more. Any Roth accounts are exempt from distribution requirements.
There is software on the internet that lets you run various scenarios to determine which retirement age is best for you to claim your benefit. Your LSL advisor can help as well, since he or she knows your particular situation and can take that into account.
For more information about your retirement plan please contact your LSL Advisor.
