Blog

Age Matters in Retirement Planning

by Craig Moser on July 28, 2017

Age matters as you approach your retirement years, and age matters in financial planning.   As a Certified Financial Planner, I’ve spent a lot of time developing Retirement Plans for my clients.   And it still surprises me how many don’t understand the impact age has on retirement planning.

When you reach certain ages, you may need to make some decisions and/or revisit your retirement plan.   I’m writing this post to help make sure you don’t miss any of the important milestones, and to help you understand why age matters.

Age 50 Matters:  Catch-up Contributions

If you’re turning 50, you can make catch-up contributions to most retirement plans and IRAs.   The only plan that doesn’t allow catch-up contributions is the SEP IRA.   Although it’s good news, there are limits on your catch-up contributions:

  • IRA/Roth IRA $1,000
  • SIMPLE IRA $3,000
  • Employer plans (401(k), 403(b), governmental 457(b), etc.) $6,000

There’s also an exception to the 10% early distribution penalty for certain public safety workers who separate from service in the year they turn age 50.   As of January 1, 2016, the age 50 exception applies to both defined contribution and defined benefit plans for public safety employees.  It doesn’t apply to IRAs.

The public safety works group includes state and local police, firefighters, emergency medical service workers, federal public safety workers (including law enforcement officers), certain customs officials, border protection officers, air traffic controllers, nuclear materials couriers, U.S.  Capitol Police, Supreme Court Police, and diplomatic security special agents of the Department of State.

Age 55

There’s an exception to the 10% early distribution penalty for all employees who separate from service in the year they turn 55 or later.  The exception applies only to employer plan funds.

If you move those funds to an IRA, the exception is lost.  Be sure to remember this doesn’t apply if you separate from service at an earlier age then wait until you turn 55 to take a distribution from the plan.

Age 59 ½

When you turn 59 ½, there are no more early distribution penalties.  This one is based on the actual date you turn age 59 ½ and applies to everyone.

Age 59 ½ to Age 70 ½

If you’re in this age group, there are no rules and no penalties.  You can take distributions any time you want in any amount you want.  (This is the sweet spot for financial and tax planning.)

 

Social Security Eligibility Ages

You should know when you qualify for early Social Security and full Social Security benefits.  Once you reach age 70, there isn’t a benefit to delay claiming your Social Security benefits.

Age 70 ½ Matters:  Required Minimum Distributions

Once you turn 70 ½, you can’t make any more IRA contributions.  In addition, you have to start taking Required Minimum Distributions (RMDs).

You can delay your first distribution until April 1st of the following year because that’s your required beginning date (RBD).  Just be aware that you’ll have to take the second year’s distribution that same year.

If you’re still working, you may be able to delay RMDs from your company plan until the year you retire.  Unfortunately, this exception doesn’t apply to IRAs.

Age 75

If you have a 403(b) plan, RMDs on balances accumulated prior to 1987 don’t begin until you turn 75.

Age 85

Qualifying longevity annuity contracts (QLACs) don’t have to be included in RMD balances until you’re 85.

1936

You, or the plan participant if you are a beneficiary, must have been born before 1936 in order to qualify for 10-year averaging on a lump-sum distribution from the employer plan.

I agree that age is only a number.  However, when it comes to retirement planning and your finances, age matters!

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