Important Steps to Take at Specific Ages for a Successful Retirement Starting at Age 50

Your 50s can indeed be an important time in your retirement journey. Apart from serving as a reminder that retirement is around the corner, this decade presents an opportune moment where you can address any gaps in your retirement plan. This can include preparing for the future, streamlining your financial affairs, and mentally preparing yourself for the golden years. Crafting a checklist of tasks to accomplish starting in your 50s ensures you cover all necessary milestones and are well-prepared and armed with the best knowledge and planning.

If you are wondering how to catch up on retirement savings in your 50s, it is advisable to enlist the help of a financial advisor. Additionally, this article can offer insights on preparing for retirement starting in your 50s.

Below are certain important steps you should take at specific ages for getting retirement ready starting age 50:

1. Age 50

If you are wondering if it is too late to start investing at 50, you must know that the biggest weapon in your arsenal at this time can be catch-up contributions. Employer-sponsored retirement accounts like the 401(k), 403(b), 457 plan, and others like the Individual Retirement Account (IRA) may offer valuable catch-up contributions to individuals over the age of 50. Individuals participating in 401(k)s, 457s, 403(b)s, and the federal government’s Thrift Savings Plan can take advantage of a catch-up contribution limit of $7,500 for 2024, over the standard limit of $23,000. This allows them to contribute up to $30,500 in total starting in 2024. Additionally, the annual contribution limit for an IRA stands at $7,000, with an added catch-up contribution limit of $1,000 for those aged 50 and over in 2024. This means individuals in this age bracket can contribute $8,000 to their IRA accounts in 2024.

Catch-up contributions provide you with additional opportunities to maximize your retirement savings. Say you plan to retire at the age of 60. This gives you ten years to contribute up to an additional $75,000 to your 401(k) and up to $10,000 extra to your IRA, assuming there is no change in the limits. For individuals behind on their retirement savings target, this can be a significant push to meet the gaps in their savings. In addition, the more you contribute, the more tax you save. In the case of traditional accounts, you can lower your taxes in the present. The money you save can be put towards your retirement needs or clearing debt and other liabilities. If you use a Roth account, the additional contributions will leave you with a larger non-taxable nest egg in retirement that can be used by you or passed on to your heirs with minimal tax hassles.

Maximizing your contributions can also help you get a higher employer match. Workplace accounts like the 401(k) may offer matching contributions from your employer. So, the more you contribute, the more you earn from your company’s match. This essentially signifies extra cash available. When invested, this increased combined contribution can yield higher returns for your retirement.

2. Age 59.5

The age of 59.5 may be a key time to use several retirement accounts. The 401(k) and IRA have specific rules about withdrawals that you must know about to ensure you do not pay penalties. When you turn 59.5 years old, you can start withdrawing funds from your 401(k) without paying a penalty. Any withdrawal before this age can result in a 10% penalty. Under certain circumstances, your employer may permit early withdrawals from your 401(k) plan before the age of 59.5 years. However, such withdrawals are allowed based on the discretion of the employer. Some companies allow withdrawals if the account holder has a significant financial need, such as an emergency. There are no uniform rules in place, and your plan sponsor will make the final decision.

Similar rules apply to IRA, too. If you withdraw money from an IRA before turning 59.5, you will incur an additional 10% penalty. You must note that contributions made to a Roth IRA can be drawn at any time without penalty. However, this does not apply to the earnings. You can only draw the earnings from a Roth IRA penalty-free and tax-free once you turn 59.5 and the account has been open for at least five years. The rules are alike for a Roth 401(k), granted that the employer allows such withdrawals.

Just because you can withdraw your funds from the age of 59.5, does not mean you have to. It is advised to use this time to develop a strategy on how and when you wish to withdraw your money. Taking into consideration your desired retirement age first and then deciding on a date to withdraw your money can help you in getting retirement ready. Remember, the option to make catch-up contributions is still available, and you can use it until you retire and stop contributing to your account.

3. Age 62

You can start withdrawing your Social Security benefits from the age of 62. However, before withdrawing your funds, you must understand the notion of the Full Retirement Age (FRA), the age at which you receive a full Social Security benefit. While you can withdraw your funds at 62, you will only get 70% of your benefits at this age. In order to get the 100% benefit, you will have to wait till your FRA. The FRA is decided based on your year of birth. If your birth year falls between 1943 and 1954, your FRA is 66. However, for those born between 1955 and 1959, the FRA increases for each year after 1954, and two months are added to the FRA. For individuals born in 1960 or later, it is 67 years old.

You can also further delay claiming your Social Security benefit after the FRA up to the age of 70. Doing this can enhance your benefit even more. Delaying taking your benefits beyond your FRA, up to age 70, can increase your benefit by 8% for each year you wait beyond your FRA. Therefore, if you wait until age 70, you can receive 124% of your retirement benefit. This results in higher monthly payments for the rest of your retirement.

It is essential to consider your financial needs when you reach this age and decide whether to claim your Social Security benefits. This decision can depend on several factors, including the age at which you retire, your income sources at the time, life expectancy, and more. It would help if you assessed when the best time is to retire. For instance, if you continue to work beyond 62, you do not have to claim your benefit and can push it at least until the FRA. However, you may need your benefits sooner if you retire at 62 or before that.

Another thing to note is that even though delaying your benefits helps enhance the check, it may not be suitable for everyone. In the case of short life expectancies, it may make more sense to claim the benefits and enjoy the money in the earlier years of retirement. As discussed in the next section, your decision to claim Social Security can also affect your Medicare enrollment.

4. Age 65

Medicare is a health insurance program that covers individuals aged 65 or older. It offers coverage for various medical services and treatments. You can enroll in Medicare automatically in some cases, while in other cases, you may need to actively sign up for the program, depending on your individual circumstances and whether you qualify for disability benefits from Social Security. Ideally, if you are 65 and receive Social Security benefits, you will be automatically enrolled in Medicare Part A during the Initial Enrollment Period. The Initial Enrollment Period begins when you turn 65, and there are no penalties for signing up for Medicare during this time. If you are 65 or older and have been covered by an employer group health plan, there exists a Special Enrollment Period. This, too, allows you to sign up for or add Medicare Part B without incurring penalties. Insurance coverage under Medicare typically commences the month following the enrollment. So, if you enroll in April, your coverage will start as soon as May.

Missing the Initial Enrollment Period for Medicare coverage can result in an additional fee known as a late enrollment penalty. If you need to purchase Part A coverage and do not do so when initially eligible for Medicare, your monthly premium could increase by 10%. Moreover, you will be required to pay the penalty for twice the number of years you have not signed up. This penalty is only waived if you have comparable coverage from another source, such as through an employer-provided plan. Moreover, if you could have enrolled in Part B but chose not to, you will face an extra 10% charge for each year you were eligible but did not sign up. Typically, you will not incur a penalty on Medicare Part B if you qualify for a Special Enrollment Period. However, it is essential to understand these penalties and enrollment periods to avoid potential financial consequences and ensure timely access to Medicare coverage.

If you are still working at the age of 65, you may delay Medicare enrollment without facing any late enrollment penalties. Additionally, you can sign up for Medicare even if you are covered by an employer-provided health insurance plan. You have the flexibility to join Medicare at different stages depending on your employment situation and coverage under the group health plan. Alternatively, if you or your spouse stop working, you have an eight-month window from the date of cessation to sign up for Medicare, even if the group health plan remains active afterwards. Similarly, you have eight months following the termination of the group health plan, even if you or your spouse continue working, to join Medicare.

5. Age 67

After you reach the FRA, you can start withdrawing your Social Security benefits, as highlighted above. The percentage of your full Social Security benefit paid will vary depending on the FRA. Say you reach FRA at 67. Opting to retire at age 67 will grant you full benefits, amounting to 100% of your entitlement. Should you decide to retire and withdraw your benefits at 68, your benefit will be increased to approximately 108% of the total amount. Claiming benefits at age 69 will bring your check to around 116% of your full benefit. Lastly, claiming at the age of 70 will result in the highest payout and provide you with approximately 124% of your full entitlement.

Understanding these percentages is crucial for getting retirement-ready and optimizing your Social Security benefits.

6. Age 73

Traditional retirement accounts such as Traditional IRAs, Rollover IRAs, 401(k) plans, 403(b) plans, SIMPLE IRAs, SEP IRAs, Governmental section 457 deferred compensation plans, and SIMPLE 401(k) plans require mandatory Required Minimum Distributions (RMDs). As of 2024, the general age to initiate RMDs is 73. Your first RMD must be taken by April 1 of the year following the year you turn 73. So, if you turn 73 in 2024, you need to withdraw your first RMD by April 1, 2025. However, if you are still employed at the age of 73 and have funds in the account through your current job, you can defer the distributions until April 1 of the year following your retirement.

Your RMDs will be subject to income tax at your regular income tax rate. Failing to take a withdrawal can result in penalties charged by the Internal Revenue Service (IRS) up to 25% of the amount you should have withdrawn. Nevertheless, if you realize your error within two years, the penalty can be reduced to 10% when rectified.

To conclude

If you are wondering when you should plan for retirement, the ideal answer is as early as possible and before your 50s. However, your 50s can also be useful in helping you achieve your retirement goals and make up for lost years. There are many financial milestones post the age of 50. Knowing these can help you adjust your retirement plan to your needs and make timely decisions to enhance your retirement financial security.

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