Key retirement milestones to ease into your golden years

Age, as the saying goes, is more than just a number. That’s especially true when it comes to planning your retirement. As you grow older, taking steps at certain milestones could affect your finances and your retirement plans.

Some of these key dates represent opportunities, like the ability to contribute more toward your retirement plans starting at age 50. Others are obligations, like the requirement to start taking retirement distributions at age 73 for those born from 1951 to 1959. Being aware of these dates might help you avoid pitfalls as you plan your retirement.

These dates can have a big impact on your retirement and sometimes can carry stiff penalties for non-compliance. So, it’s important to work with your financial planner/advisor and tax/legal experts as you approach retirement.

Here are some of the dates to keep in mind.

Age 50: Catch up on retirement contributions

After you turn 50, the IRS allows you to make “catch-up contributions”.‍ ‍ ^{See note 1} These let you contribute beyond the standard annual limit to 401(k)s and IRAs. This can boost your savings, especially if you’re concerned you might not have saved enough during your career.

Age 55: Consider diversifying and boosting your HSA

At age 55, you’re able to start making catch-up contributions to your health savings account, or HSA. This can be a valuable tool as you plan for retirement. You can contribute an additional $1,000 each year to your HSA, on top of the yearly maximum contribution amount. Once you’re enrolled in Medicare, you cannot contribute to an HSA.

This age also presents an opportunity to diversify your investments, especially if your employee stock represents a large percentage of your overall portfolio.‍ ‍ ^{See note 1} Employees with at least 10 years of participation in an Employee Stock Ownership Plan, or ESOP, may diversify up to 25% of company stock each year, beginning at age 55 and ending at age 59. The year you turn 60, you can diversify up to 50%.

If you leave your job after age 55, you may be able to withdraw money from your employer-sponsored retirement plan without paying penalties thanks to the IRS rule of 55.‍ ‍ ^{See note 1} You’ll still have to pay income taxes on it, and the provision only allows these withdrawals up to age 59 ½. Qualified public safety workers can take advantage of this rule a little earlier, starting at age 50.

Age 59 ½: Skip the federal tax penalty

This is generally the earliest you can withdraw money from an IRA, 401(k), or 403(b) without penalty or limitations. However, just because you can take money out of your retirement plan doesn’t mean that you should. For example, you may still owe federal income tax on these withdrawals. It’s best to discuss your plans with your financial advisor or tax professional.

Now that you’ve reached age 59 ½, and assuming your Roth IRA has been open for at least five years, distributions of earnings are now tax-free.

Age 62: Qualify for Social Security benefits

Most people can start collecting Social Security at age 62. Widows or widowers without children younger than 16 can receive reduced benefits starting at age 60.

It may be tempting to start receiving benefits early, but keep in mind that you may be reducing your lifetime benefit by about 30%. Compare that to waiting until your full retirement age, which varies depending on when you were born.‍ ‍ ^{See note 1} If your spouse will be dependent on your Social Security benefit, their life expectancy should be the basis for your claiming strategy.

Around this time, you may also be able to take advantage of special tax treatments for seniors in your state. For example, you may be able to reduce or freeze some of your state, local or municipal taxes. Some states also offer tax credits or rebates. It can also be a good idea to compare your state’s taxes to other states.‍ ‍ ^{See note 1}

Age 65: A major milestone with many changes

This is the earliest age at which many people qualify to enroll in Medicare. The Medicare Initial Enrollment Period, or IEP, starts three months before your 65th birthday and concludes three months after your 65th birthday. Don’t miss your window of opportunity, otherwise Medicare Part B and prescription drug coverage Part D may be more expensive.

It may be helpful to talk to your financial advisor to understand how your employer-provided health care benefits might be affected when you turn 65 and to familiarize yourself with the basics of Medicare. And once you enroll in Medicare, you are no longer able to contribute to an HSA. You lose eligibility on the first day of the month you turn 65.

Those aged 65 and older can get a break on their federal income taxes thanks to a higher standard deduction.‍ ‍ ^{See note 1} Talk to your tax preparer to determine if you’ll save more taking this new higher standard deduction or by itemizing. Note: The IRS considers you to be age 65 on the day before your 65th birthday.

Ages 66 to 67: Full retirement age

If you were born from 1943 to 1954, congratulations! You’ve reached full retirement age for Social Security. That age increases by two months for every year after 1959. For example, the full retirement age for those born in 1959 would be 66 and 10 months. For those born after 1960, the earliest they’ll reach full retirement age is age 67 in 2027.

No matter when you reach full retirement age, it may still make sense to delay the start of Social Security benefits, depending on your marital status, employment status and other circumstances.

Age 70: File for Social Security if you haven’t already

If you defer taking your Social Security benefits in your 60s, you may be eligible for tax credits. However, at age 70, those credits end. That means there’s no longer any benefit to delay receiving Social Security. If you haven’t started receiving your benefits, consider doing so now.

Age 73 and older: Take your required minimum distributions

If you made pre-tax contributions to a 401(k) during your working years, the law requires you to begin taking taxable withdrawals by a certain age. Currently, that age is 73 for those who turn 72 after Dec. 31, 2022. For those who will turn 73 in 2033 or later, the required minimum distributions, or RMDs, kick in at age 75.

These are just a few of the key dates to keep in mind as you navigate through retirement. To see if you’re on track for your retirement, consider a checkup by contacting a USAA Retirement Income Specialist at 800-531-3392.