Landmark Ages in Retirement (50, 55, 59½, 62, 65, 67, 70, 73/75)

Retirement has “landmark ages” — moments where the rules change on contributions, withdrawals, Social Security, Medicare, and RMDs. In this episode of Retirement Roadmap, Evan and retirement planner Mark Fricks walk through the retirement timeline and explain what each age unlocks — and what to watch out for before you pull the trigger.

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Transcript

Why Age 50 Changes The Game

SPEAKER_00 0:10

What are the landmark ages in retirement? Hey folks, welcome back and thank you for joining us. Welcome to Retirement Roadmap with Master Plan Retirement Consultants. My name is Evan. With me as always, retirement planner Mark Fricks. Today, Mark, we're discussing landmark ages in retirement, ages that we need to know what to expect. Sometimes we need to be prepared for when those ages arrived. Sometimes we need to understand what's uh what the consequence of hitting that age is gonna be. Sounds like a test. It's a test, and there will be a write-in portion towards the end. Absolutely. Um I want to jump right in, and we're gonna start at pre-retirement ages. Now, really the first age we could talk about is 18, when you're going from a minor to a uh a major, right. Um to where you are now a full-fledged citizen, you can invest your own money and kind of kick off that whole road. But we're gonna skip ahead a few years and assume that you've done a really good job of saving and putting away money. That could be a whole different episode on how to maximize your savings, which we will hit at some point. Um, but we're gonna skip ahead to age 50. Um that is kind of uh the first landmark point in retirement. One, uh, because that is when you can now make catch-up contributions to your retirement accounts. You get a little bit of extra there. But also that's a real good spot to start to evaluate are we prepared for retirement?

SPEAKER_01 1:40

Yeah, hopefully you've done a great job of uh putting money away at work. By the way, it's never too late to start. Let's let's plant that uh tree right there for sure. But we've had people that have come to see us in their 60s, early 70s, and they're like, we have nothing, and we have put together a plan that they have been able to able to accelerate. So don't don't let that uh you know throw you off. But yeah, 50 is a good age. We we kind of, you know, if we get if we if you have kids, they're kind of beginning to maybe move out the door or gain some independence. Uh some of your expenses may be going down because of that. You know, if you get three kids driving and two in college or whatever, that's a tremendous load, I know. But even without kids, it's a good time to think, okay, I'm entering, not entering, I'm approaching my third trimester of life, so to speak. And so what's next? And am I prepared for that? So yeah, I think 50 is a uh besides the catch-up, which is why we have the catch-up contributions, right? Is so you can put more money away. Hopefully you've got more money you can put away. You're probably in your peak earning years. If you're a spouse that stayed home with kids, maybe this is the time you go back into the workforce. So lots of things happening at this point, and I think it's a great time for people to contact us uh as fiduciaries, as planners, not just, hey, we're gonna invest your money, but we need a plan. And so what's step one, step two, step three, all the way to and through retirement? So I think that's a great point.

The Rule Of 55, Explained

SPEAKER_00 3:04

Yeah, age fifty is a point where many people have about 10, 15, maybe 20 years left of working, just depending on what they do and what their plan is. But that's kind of the point where you need to make sure that you have a plan set in place, you've start to uh to gather that plan together, you've created that plan, you already know the goals set out before you. It's a great time to meet with a planner. Um, like Mark said, um, when's the best time to plant a tree? That's 10 years ago. The second best time is today. So start as soon as you can, of course. But 50 is an opportunity to maximize savings. Again, all your retirement accounts have the opportunity to put a little bit more with catch-up contributions in your IRAs, your Roths, 401ks, and other employer-sponsored plans. They all have a little bit extra that you can put in. Um, it's a little bit extra help as we have our you know few years left before we need to kick things off. Um, but that's age 50, catch-up contributions. Um the next age that's a landmark that is not as commonly spoken about is age 55. And why is that important? Well, um, for some people, it's an opportunity for early withdrawal penalties to be waived from some of their employer-sponsored plans. Well, what the heck does that mean?

SPEAKER_01 4:17

Yeah, so basically if you have a 401k, 403B thrift savings plan or whatever uh from a uh former employee, uh employer, I'm sorry, um, then you can actually access that money. Now I wouldn't unless you are taking an early retirement or a major emergency because you're denting your your retirement, but you actually can access those funds uh without a penalty. Uh otherwise, if it's in an IRA or whatever, it's 59 and a half. Also, if you've got, you know, this slightly off topic maybe, but if you've got some old 401ks and old ERISA plans and again, 403Bs, whatever it may be, from former employers, you probably want to talk to somebody like us and get those invested in a better diversified, uh, many times less expensive holding. Um, you know, you just have so few choices in a 401k. Uh, you have nobody really making choices for you, uh, what to buy, when to buy it. You you're limited on how often you can trade as well. So uh that's something we can review with you as well. If you've got some old plans, maybe we leave some there just in case you need to access it again. It depends on what other money you have, things like that. So it's a lot of pieces that kind of come together. I mean, if you've got a great savings account uh and and backup to cash, then uh it's not as critical to keep money that you can access at age 55. Uh but if if that's your final retirement, that's a really critical age. Because if you're 55, 56, 58, and you retire, don't let somebody come in and roll every penny out of that last employer's plan because that is the only place you can go for that penalty-free money as well. So it's a lot of moving pieces, and you know, you make a you make a wrong move, there's no correcting it. It's done. Yeah.

SPEAKER_00 6:04

There are a few caveats you just need to make sure, you know. First of all, it's called the rule of 55. It's an IRS rule, you can look it up, rule of 55. Um, it's plan dependent. Just because you have a 401k and you happen to be leaving and have this last 401, and you're at 55 between age 55 and 59 and a half, it does not necessarily mean that that plan will allow you to withdraw penalty-free. You need to make sure, you need to speak to folks at work, make sure that your plan observes that. A lot of the major ones do at this point, but still don't jump off the retirement cliff thinking you can retire early and all these funds are available for you. Um you need to know for sure that your 401k or 403B or whatever observes the rule of 55. Two, as Mark alluded to, it's only your last employer's 401 or employer-sponsored plan. Let's say you have a couple of old 401ks you never rolled over from previous jobs and you just retired, your last 401k may have the rule of 55 option, but your previous ones do not. Now you could roll those into your 401 that you're currently in. However, if you're still working, rule of 55 doesn't work. You have to retire, and it's your last 401 or plan that that the rule of 55 could apply for. Um so make sure you know, first of all, speak to someone like us, an expert in retirement planning, speak to the people at your work, um, HR, your plan sponsors, all of those things, double check and make sure that you know what the rules are for your specific situation before you jump off. And just a quick little point, too.

SPEAKER_01 7:41

Uh hopefully all we're we're halfway through an episode. And already there are so many rules flying around. And you know, don't do this on your own. This is just so complicated. And uh, you know, people come to us finally realizing that. Sometimes they never realize that, and suddenly they're in over their heads. They've made they've made mistakes. We've cleaned up some mistakes, many you can't clean up. Don't don't let whatever it is, uh, whether it be procrastination, whether it be, oh, well, my friend didn't need help, or my dad didn't need help, or whatever. Uh, it's the same thing with going to see a medical doctor, you know, primarily men have for many years have said, I don't need a doctor, I'm fine, I mean, I don't need checkups or whatever. And we're learning, uh, hopefully many of us men are learning that yeah, we do. We we need a plan going ahead, and the sooner you start, the healthier you're gonna be. Well, it's the same thing financially. So hopefully you're already seeing in uh halfway through this episode that it was there's more to it than I'm gonna turn on Social Security and kick back. Yeah.

Penalty-Free At 59½ And Bucket Planning

SPEAKER_00 8:39

Yeah, and let's personalize it for a second without spending too much time on this. Let's say you're 56 years old, you want to retire early, your 401k observes the rule of 55. You could retire technically and access that 401k penalty free. You're still got to pay your taxes on it when you withdraw, but you won't have that 10% penalty. However, we've already spoken on previous episodes, I don't want to get too much into it today because of time. You don't just want to make withdrawals from your 401k willy-nilly. You need to make sure you have a plan, a withdrawal plan for that gap between 55 and 59 and a half, especially if you have other IRAs and things that are maturing till 59.5, which is the next age we're going to talk about. It all has to work together. I don't want to get too far on a tangent because there's a lot.

SPEAKER_01 9:22

But then the other gap, too, before you turn on Social Security. Uh-huh. So again, I'm sure we're going to touch on that as well. So let's uh let's keep jumping.

SPEAKER_00 9:30

The spoiler alert, the next age is 59 and a half, and that's when the 10 percent withdrawal penalty from your IRAs, 401ks, Roths, all of that is completely waived. Even if you're still working, you can now make penalty-free withdrawals from your 401ks. This is a really good opportunity, if you are still working, to start considering rolling over part portions of your 401ks to individual Roths, uh, individual IRAs, things like that, so that you can begin to allocate your funds according to your retirement plan. Uh for instance, like I mentioned earlier, we don't want to take withdrawals from a market account that's going up and down, especially if we need monthly withdrawals to replace that paycheck in retirement. So maybe we take a portion of this 401k, put it in an income product that's got guaranteed income that we don't have to worry about what's happening in the market. Then we can use some of our other funds in different allocated buckets uh for our growth, maybe future income gaps, things like that. Um, but this is the first opportunity at 59 and a half where that early withdrawal penalty is waived and we have the opportunity to start allocating with our retirement plan.

SPEAKER_01 10:36

And talking about the allocating, it it's it's the the efficiency of um separation, I think might be a good way to put it. In other words, let's put a segment of our money in the best tool for what that money needs to do. And so there could be, as Evan alluded to, six, eight, ten, twelve different jobs our money needs to do in retirement. Whereas when we were working, I had one job and that was to grow. The sooner you get started on developing those individual buckets of money, the quicker they can mature and be ready to go when it's needed.

Social Security At 62 Pros And Cons

SPEAKER_00 11:07

Absolutely. Absolutely. Um the next landmark age is 62, and that is the first opportunity you have to draw your social security. Um that is early social security. But just because you can doesn't mean you should.

SPEAKER_01 11:22

Yeah, there is a uh uh what is it, 30-something percent penalty? Yeah, yep. I don't know the exact 30 percent reduction in what you would get if you waited to a full retirement age. That's a lot of money over a lot of years. Now, there's reasons why you may want to take it at 62, maybe uh you your lifespan may be shorter for health purposes or or family or whatever. Uh maybe you need the money, that's a good reason to have to take it. Uh and so that's a discussion we have with every client is not only just what does the math show us, but what does your life show us and and what are the things coming up? And and and if you're a married couple, maybe one takes a little bit earlier, one a little bit late later, things of that nature. But yeah, be careful because again, once you trigger it, uh you have one year to change your mind, pay it back, and then kick that rock down the road a little bit. Uh I've got some people that have told me, hey, it's my money, I'm not waiting any longer. That's fine. You're exactly correct. Uh my job is to advise, our job is to recommend based on numbers and your life and your goals.

SPEAKER_00 12:23

Yeah. And there are a couple of caveats with this as well, without getting, again, there are a lot of details we could cover. Um, if you are retiring early and you could start pulling Social Security, just because you can doesn't mean you should consider filling some of those early years with tax-deferred money, letting that Social Security amount grow a little bit, maybe you can still delay in retirement and not turn it on at 62 and let that guaranteed amount grow a little bit. That's an option. Another important option, if you are retiring under retirement full retirement age, which is age 67 for most people, um, there is an earnings limit on what you can earn per year if you start taking Social Security early.

SPEAKER_01 13:06

It's touching 24,000. And that's careful, that's earned money. So if if I retire at 63, I turn on social Social Security, and I go get a part-time job or full-time job, do consulting work or something, and I'm earning that money. I'm gonna get a W-2 or a 1099 contractor type tax bill, then my limit is$24,000, or you start losing a dollar of every two dollars over that$24,000. So if you make$50,000 and you didn't know about this rule, you're gonna get a letter in 18 months from Social Security saying, we've sent you$10,000 too much. Please make your check payable too. Yeah, yeah.

Calls, Stress Tests, And Free Consults

SPEAKER_00 13:43

So they do take credit cards too. Yeah, they do actually. That doesn't mean you can't go back to work, but make sure that the IRS knows, make sure Social Security knows. Paul's Social Security or South. Deposit. Absolutely. Absolutely. I do want to take a moment, folks, and refer you to our website, masterplanretire.com. We have multiple retirement resources there, including links to multiple episodes that cover the gamut of retirement topics. However, um perhaps the most important part is the schedule now button. There's a green button that says schedule now. You click that, it'll take you directly to our calendar. You find a time that works best for you and schedule your complimentary consultation. That's an opportunity to discuss your own retirement, your hopes, your dreams, your fears. Uh, and we have homework after that. We run a series of reports. Um, no planning, no recommendations yet, but what happens when we put the proverbial key in the retirement engine and turn it on? How long does your money last? And we call that nirvana, Mark, right? How long does the money last without touching it? Perfect world. And then we take that report and we stress test it. What happens with average bear markets every five years? What happens with increased taxes or cost of living, passing of a spouse, long-term care need? We'll run those series for you because you don't really know what you need to plan for if you don't know your weaknesses and your strengths.

SPEAKER_01 14:59

And the most important part about everything Evan just mentioned is complimentary. And so we will spend these hours, we'll spend this time with you, we'll spend the time behind the scenes to just illuminate, again, your future financially.

Medicare At 65 And IRMAA Traps

SPEAKER_00 15:12

Yeah. It's a great opportunity. Take advantage of it. Masterplanretire.com or call us at the office 770-980-9262. Uh the next age I want to hit is a big one, that's age 65. Um, and that is because that's the opportunity for most people to turn on Medicare. Sign up for Medicare. Well, I thought it was because that's uh oh what I just turned. It's important for Mark because yeah, he's he's ha been very reflective over the past few months.

SPEAKER_01 15:40

Just hit the big Medicare age. Yeah. Yeah, it's really been an uh interesting experience. Um learning more about Medicare. I mean, we we advise people on that. I know a good bit about it, but digging even deeper. We have consultants we work with, with our clients to choose the best plans on on Part B and and the drug plans and all this kind of stuff. But uh and also if you're a federal worker, you have further decisions to make because you have you can actually avoid Part B and not pay for that, and your federal health benefits will cover. But there's some of the little caveats in that as well. So it didn't mean to interrupt you. I know you're gonna touch on some highlights.

SPEAKER_00 16:16

65 tends to be a target retirement date for a lot of people, just naturally, because it's when now they have some health insurance coverage outside of their employer, especially if their employer coverage is not going to carry over in retirement. So it does tend to be a target date that does not mean it should be yours. Again, careful planning, make sure that everything fits together as it is. Um but retiring before 65, the health insurance aspect, if you're not covered from your previous employer into retirement, that is becoming an increasingly large bill uh for retirees and and the needed income per year. So that's a huge consideration and a good reason why 65 could be a target date for you. Again, that's not a recommendation. There are so many other aspects that go into it.

SPEAKER_01 17:04

There are, and and and most employer plans don't cover inter-retirement anymore. That's that's mostly gone. And then you have a spouse. If you have a spouse to worry about, if both of you are under 65, now you've got two health bills. And if you've shopped health insurance, it it's it's a major, it's a major issue. So we do have folks that will delay that till 65 for that very purpose uh because that's an added, who knows? Yeah.

SPEAKER_00 17:29

$800,000,$1,200,$2,000 for a couple, something like that per month. Keep in mind there's a seven-month initial enrollment period, um, three months before your birth month and three months after where you can sign up. Uh don't miss it, because if you do, you could potentially be paying higher premiums for Part B for the rest of your life. Um, one more caveat, uh, we've talked about IRMA before, I-R-M-A-A. Um, that is that's got a two-year look back. So really we could have added age 63 as an age here as well.

SPEAKER_01 18:00

A landmark age, because those last two years before 65, they're gonna look at your tax return, and if you exceeded a limit of of income, total um age uh AIG, AGI, AGI, thank you, uh, was um so they'll charge you more for your Part B Medicare premiums. Right now they're I think 206 a month standard, but then there's uh four more levels above that up to almost six hundred dollars per person per month for your Part B. Now you're talking again a whole lot of money. And so those last two years, now maybe you can't help it. You know, I had a full-time job, my spouse had a full-time job, we made good money at age 63, 64, 65. Um what you can do about that. But you can also submit a form, I think it's an SS4, where if your circumstances changed, such as retirement, you can contest that and maybe only have to pay one year or or avoid it totally. I think at least you may have to pay it for one year. But another good point, uh you're probably gonna make it here in just a minute, is be careful about Roth conversions. So if you're working with someone, you're converting some IRA money into Roth money at ages 63, 64, 65, that counts toward that income. Yeah. You may be unintentionally pushing a client into a bigger bill. Now, maybe it's okay if you talk about it, right? I'm willing to pay a little bit more because I want some more tax-free money, but that's a discussion you need to have with your advisor. Again, be careful before you pull a lever, you gotta look all around behind the curtain.

SPEAKER_00 19:31

That's a great example of why it's so important to start around 50-55 when you're making that retirement plan. Because if you want to include some conversions, you got a good window to where you can get away with it without having extra uh consequences with Medicare, things like that.

SPEAKER_01 19:46

Plus, of course, our feelings on taxes, if you've listened to our tax shows, is we are in a season of taxes being on sale. They've been locked in for another four or five years, made permanent, which be basically means until somebody changes them, right? But during the current administration, uh they'll stay the same and they are low. They're as low as they've ever been. Even I think when Reagan made his major tax reductions, maybe they're close to that. Yeah. Uh maybe a little bit better because of the major exemption. So we are in a uh uh on-sell tax season. So a good time over the next five to seven years uh for that uh purpose as well.

Full Retirement Age At 67

SPEAKER_00 20:20

Only about four minutes left, so we're gonna have to brush through these a little bit. But uh age sixty-seven is the lex uh the next landmark age, and that is full retirement age. And all that means is it's the date in which all Social Security calculations are based. Is it time to retire? I don't know. What does your plan say?

SPEAKER_01 20:39

Yeah, uh people confused. They'll they'll come up and say, yeah, I'm retiring at age 66 and 10 months. I immediately know that's when their full retirement age is. Has nothing to do when you when you should retire. So many people retire at age 62 and don't turn on their social security until 70. So that's not the driving force as long as you have a plan. Um but uh 67, all these calculations come together, and there's that 100% number of what you get. You take it earlier, you get less. You take it later, you get more. That's all that calculation is. It's also when you can earn as much money as you want to if you go to work part-time or full-time. At age 67, that year you can earn up to, I think, a 67,000, and then after your birthday, you're unlimited what you can earn. It does not affect your social security.

Maximizing Benefits At 70

SPEAKER_00 21:21

Unlucky if you have a late-year birthday, but still uh we have January 2nd, you got it made. Yeah, absolutely. Um the next landmark age is age 70, and that's the maximum social security benefit available to you. Congratulations. If you haven't taken it yet, you made it. Um so for every year after age 67 that you wait to take Social Security, your benefit increases a guaranteed 8 percent. Not bad.

SPEAKER_01 21:46

Yeah, and I've actually had people come to me and say, uh I'm 72, I still haven't taken Social Security or not. Why? Why take it? Yeah, because it's not going to grow anymore after 70. People say, is that when you're required to take it? Actually, no. You're not ever required to take a take. Required to take Social Security, but it's money on the table. Even if you want to give it away to a humane society or whatever, turn it on. It's not going to grow anymore. Now, if you if you miss it by maybe six months to a year, they'll probably back pay you. But if you get into 72, 73, you've lost some money.

QCDs At 70½

SPEAKER_00 22:17

It's money you've been paying into for years and years and years and years. Even if you don't need the money, take it and give it to somebody who does. We'll take it. Yeah, we'll take it. Yeah, sure. We'll take it. Make your check payable too. No. Yeah. Next age, uh 70 and a half. And that is 70 and a half. QCD eligible.

SPEAKER_01 22:35

Qualified charitable distribution. You can actually, and we are running out of time, I realize, but that's when you can actually give IRA money to a uh a charitable organization. 501c3. Yeah. So if you make if you make donations to your church, to Humane Society or whatever, do it before tax. It goes tax-free from you to that organization. They don't pay taxes on it. Either a good way to reduce your IRA sum if you want to spend that down uh so as you know not to pay taxes on it later as much. Uh if you're already giving to a church or something, uh it's before taxes.

SPEAKER_00 23:08

Yeah, it's a great opportunity. Uh if you're if you tithe, you don't have to take it out of your Social Security payments or pension or whatever regular income. Take it out of the IRA and save a little bit of money.

SPEAKER_01 23:18

Yeah, you might take it out of your IRA, pay taxes, and then give it to somebody.

RMDs At 73 Or 75

SPEAKER_00 23:20

Yeah. 100%. Um then finally, age 73 or 75 if you're born after 1960, and that is RMD age.

SPEAKER_01 23:28

Required minimum distributions, you're required to take a percentage out of your any IRA money. Um if it's still at 403B, 401ks, if you're still working, you can avoid it uh if it's still there. But otherwise, 73, pretty big penalty if you don't do it. We calculate it for our our uh clients to make sure it's correct. Uh 75 is the RMD age if you were born 1960 or later. So sorry to rush through the little last part there.

Wrap-Up And Next Steps

SPEAKER_00 23:55

Yeah, sorry about that. But we do have some RMD specific episodes, and it might be worth doing another one soon because it's a huge topic. Good reason to consider conversions early on. Um but what until next time, folks, thanks for joining us. Remember masterplanretire.com to schedule your complimentary consultation.

SPEAKER_01 24:13

Thanks for listening in, and until we see each other again, we remember plan well and prosper. Take care.