You’ve been saving for years and you can see retirement down the road. What is your timeline? How does all this fit together? Below is a timeline on how to start the retirement process and help explain how the puzzle pieces work 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 would 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 timeline below may help.
In your 40’s – 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 you saving enough? How does sending their child to college fit in with their own retirement plans? This is the time to create a financial goal 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. Read more about paying for college here: “From the Trenches, Paying for College.”
In your 50’s – Make adjustments to your financial plan
If you haven’t done a financial plan, now is the time. If you have done one, relook at 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 from other plans for being under the age of 59 ½. 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.
Age 59 ½ – The magic age for 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 401k, 403b 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 – Earliest age to take your own Social Security payment.
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.
Age 65 – This is the age you start Medicare.
The sign up window is 3 months before your 65th birthday through three months after. With few exceptions, if you miss this window you are subject to a lifetime penalty.
Age 65-67 – This is the 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. Those born between 1955 and 1959 is age 66 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 then your benefit increases 8% for every year you wait.
Age 70 – This is the last year for having waited to take Social Security.
If you haven’t started yet, start now! And enjoy those bigger paychecks!