An insightful look at the ages and stages of retirement

“You know, I turn 60 this year so I guess I need to register with Social Security,” my client said between bites at one of our regular breakfast meetings.

“Carl, we need to discuss just how this all lays out,” I responded, setting down my coffee cup and pulling out a legal pad and pen.

Over the years, I’ve discovered many people know decision dates are looming as they approach their 60s but they’re unclear about what those trigger dates are or their significance. Here’s an admittedly simplified look at ages you’ll want to watch as you near retirement.

59½

This is the age at which you can take money from most retirement accounts without triggering a 10% early withdrawal tax penalty.

There are exceptions.

If the money is in a qualified plan — a 457 Plan, 403(b) or 401(k) — you can make withdrawals at the age of 55 without triggering early withdrawal income taxes. This is a little-known fact and may be a good reason to consider NOT rolling over a company retirement plan into an Individual Retirement Account if you might need use of the money between the ages of 55 and 59½.

However, there are other ways to access retirement account money before 59½. A financial adviser can help you sort through these choices.

A Roth IRA, an after-tax personal retirement plan, is another exception. You can take out the principal (the amount you invested) at any time because the money has already been taxed. There are penalties or income taxes if you take out your profit before 59½ or if the account has been open for fewer than five years. Again, it’s good to consult with your financial or tax adviser to help determine this.

60

This is the earliest age at which a widow or widower can receive Social Security benefits.

It’s possible to file for Social Security as a survivor, then move to your own benefit. These rules are complicated and you should consult with Social Security Administration agent before making a decision.

62

This is the earliest age at which you can claim Social Security benefits.

It’s believed that more than half of Americans collect Social Security before reaching “Full Retirement Age.” (more on that below.) Claiming your benefit at this age can significantly reduce your monthly benefit amount.

65

This used to be Full Retirement Age (FRA,) but changes to the system in 1983 adjusted the dates based on an individual’s year of birth.

Age 65 remains the FRA for anyone born in 1937 or earlier. FRA will be later if you were born after that. For example, FRA for persons born in 1960 or later is now age 67.

I’ve learned that many people believe they must or should take Social Security at age 65. But if their Full Retirement Age is a later age, they will lose a significant amount of income by taking the benefit early.

The Social Security Administration website, www.ssa.gov, is an excellent source of information on Full Retirement benefits based on year of birth, and the reductions that occur if you take the benefit early.

65

This age gets double-billing because it’s when most people go on Medicare. There are many available choices in the Medicare system now and decisions related to Medicare can be complicated. Consulting with a trusted health insurance agent can make this process easier.

70½

This is a tricky one because of recent changes made by passage in 2019 of the “Setting Every Community Up for Retirement Enhancement Act,” more commonly called the SECURE Act.

If you were age 70½ in or before 2019, you must take a Required Minimum Distribution (RMD) from your retirement accounts. This is important because failure to do so results in a 50% income tax penalty. The RMD is recalculated annually based on the December 31 account value and life expectancy table.

However…

72

The new age for Required Minimum Distributions under the SECURE Act for anyone who wasn’t 70½ by Dec. 31, 2019 is now 72.

Clearly there are many important choices to make as you approach retirement and it’s not possible to provide all the details here. But perhaps this list will serve as a reminder about when to start the decision-making process.

Barbara McMahon is a CERTIFIED FINANCIAL PLANNER™professional and member of the Financial Planning Association of Greater Kansas City. She is the President of Innovest Financial Partners in Kansas City. Securities and Advisory Services offered through an Investment Advisor Representative of Cetera Advisors LLC, Member FINRA/SIPC, a broker dealer and Registered Investment Advisor. Innovest Financial Partners, Inc. is independent of Cetera Advisors LLC, 601 E 63rd Street, Suite 220, Kansas City, MO 64110, 816-363-6660.

This story was originally published February 25, 2020 at 7:00 AM with the headline "An insightful look at the ages and stages of retirement."