retirement planWhile you might have a good idea of when you want to retire, it’s never too early or too late to create a comprehensive retirement plan. Whether you are just getting started or have already given a lot of thought to IRAs, 401(k)s, and savings, it is important to understand how age can—and often should—impact your decisions.

Here, we will consider some of the most important age-related milestones in retirement planning.

Retirement Planning During Your Wealth-Building Years

When it comes to retirement planning, starting early is almost always the best strategy. If you are age 49 or under, you are best positioned to take advantage of compounding interest returns. Putting money in a retirement account can, in many cases, qualify both you and your employer for big tax breaks. If you have a 401(k), for instance, you are eligible to deposit up to $19,500 in 2021.

Similarly, you can put a maximum of $6,000 into a traditional or Roth investment retirement account (IRA). Oftentimes, young savers can reap huge rewards from Roth IRAs since most people don’t reach their maximum earning potential until later in life. However, there are different kinds of IRAs—which type is best suited for you depends on your individual circumstance and unique needs. A wealth planning attorney can help you decide which kinds of accounts suit your present financial condition and long-term aspirations.

Take Advantage of Retirement-Planning Benefits for Older Workers

After you have turned 50, you can make larger contributions to your retirement accounts. While everyone is beholden to the annual 401(k) limit of $19,500, employees aged 50 and older can make “catch-up” contributions of $6,500—in other words, if you have already passed your 50th birthday, you can put up to $26,000 per year into 401(k). Older workers can make bigger contributions to their IRAs, too. For 2021, employees over 50 can add an extra $1,000 per year to their IRAs for an annual max of $7,000.

If you have had a particularly successful career or otherwise wish to retire early, waiting until 55 lets you make penalty-free 401(k) withdrawals from the account associated with your most recent job. Furthermore, you will not be subject to the federal government’s 10% penalty on early withdrawals. However, if you have rolled over your 401(k) to an IRA, then you will not be able to make penalty-free withdrawals until you are at least 59½.

If you have already retired or are seeking to retire, you may begin receiving IRA disbursements at age 59½ without penalty. Do remember that you will still be subject to income tax at this age.

Benefits of Waiting Until a Traditional Retirement Age

Planning to retire at age 62 can make a lot of sense: you will be eligible to begin withdrawing Social Security. However, there is a significant downside for people who expect Social Security benefits to be their primary source of income: stepping away from work at 62 will lead to a permanent, life-long penalty. Your monthly payments will be reduced, and they will never be fully restored.

The sum of your penalty depends on your individual retirement age. If the federal government has set your “full retirement age” to 67 or 67½, retiring at 62 could mean that your monthly Social Security benefit will be 30% less than if you had waited several years longer.

Additionally, your Social Security may also be withheld if you decide to work again—even part-time. 

Even if you are still working, you should consider signing up for Medicare at age 65. You are allowed to enroll in a Medicare program up to three months before your 65th birthday. Waiting too long results in penalty premiums and levies. Your Medicare Part B premium will rise by 10% for each 12-month period you were eligible for benefits but did not enroll.

If you are retiring after your 65th birthday and did not sign up for Medicare because you or your spouse were covered by an employer-sponsored health insurance plan, you can avoid Medicare penalties by enrolling within eight months of leaving work or your insurer.

If you were born between 1943 and 1954, you will be able to receive your full Social Security amount at age 66. If you were born later, your full retirement age—the age at which you can receive Social Security without penalties—scales depending on your month and year of birth.

Sixty-seven is the full retirement age for everyone born after 1960.

Older Retirees Can Get More Social Security

Waiting until 70 can pay dividends for people who expect to be more reliant on Social Security benefits. For every year you wait to retire past your full retirement age, your Social Security payments will increase by 8%. However, there is no benefit to waiting past age 70.

If you have a 401(k) or traditional IRA, then your 72nd birthday is a big deal. Once you have passed 72 years of age, you are legally required to begin taking annual withdrawals from such accounts. If you miss a withdrawal, you will be penalized half the amount you should have taken out. Bear in mind that you must also be prepared to pay taxes on your withdrawals.

How an Attorney Can Help

When you are planning for retirement, the age at which you choose to retire can have a significant impact on your finances, investment benefits, and overall quality of life. While you may be tempted to retire early—or to work until you have maximized your gains—the long-term repercussions of retiring at a certain age are very much dependent on the decisions you have already made.

No matter how old you are, a wealth planning attorney can not only help you configure a retirement plan but can also put you on a better path to live out your golden years in comfort. Younger clients can benefit from an evaluation of their financial situations and investment potentials, whereas older people may be able to take advantage of the many federal programs designed to put soon-to-be retirees on a more prosperous track.

If you need help getting your retirement plan sorted out, send us a message online or call us today at 870-275-4304.

Carrie Russom Quraishi, JD, CAPP
Carrie provides personalized wealth management, tax and estate planning services to clients in AR, TX & TN.