Birthday celebrations at 50 and each year after can be meaningful opportunities to reflect and feel grateful for life’s journey. Some also mark important milestones in retirement planning and your financial life.

Here’s a look at why, with a focus on each milestone birthday after 50 and the role it can play in your overall financial wellness.

Age 50: Catch-Up Contributions

When you turn 50, you can start to make "catch-up" contributions to your 401(k)s, 403(b)s, IRAs, and other retirement accounts.

These catch-up contributions don’t replace standard contributions; instead, they increase the contribution limits at age 50, letting you put more into your retirement accounts as a way to “make up” for previous years, when contributions may not have been maxed out.

Notably, catch-up contributions:

1. Differ by type of retirement account
2. Are updated annually for inflation by the Internal Revenue Service (IRS)

The table below shows the catch-up contributions permitted for different types of retirement accounts in 2024.^1,10

In 2025, these catch-up contributions will change again, with across-the-board updates due to the Secure Act 2.0. This includes a $10,000 catch-up contribution in 2025 for 401(k)s.²

Age 55: Penalty-Free 401(k) Withdrawals (Rule of 55)

Are you planning to retire between 55 and 59½? If so — and if you have a 401(k) or a 403(b) retirement account, you could start taking advantage of the Rule of 55 as soon as your 55th birthday.

If you do, you can start withdrawing funds from your 401(k) or your 403(b) without incurring the 10% early withdrawal penalty.³

Please note that:

• Income taxes will still apply to any withdrawals.
• The Rule of 55 only applies to 401(k) or 403(b) accounts associated with the job from which you’re retiring after the age of 55 and before 59 ½.³
• The Rule of 55 does not apply to IRAs or 401(k)s from a previous employer.³

From early retirement or unexpected layoffs, the Rule of 55 can offer important flexibility in retirement planning, taking penalties off the table when plans and jobs may be in more flux.

Age 59½: Penalty-Free IRA & 401(k) Withdrawals

More withdrawal penalties come off the table when you turn 59½ because, now, you can start pulling funds out of your IRAs and other 401(k)s without incurring the 10% early withdrawal penalty.⁴

Although these withdrawals can still be taxed as income, removing the withdrawal penalties can open up more financial resources at a time when you may be:

• Considering scaling back work-wise, possibly with fewer hours or part-time status.
• Roughly 3 to 5 years off from full retirement (please note that the average retirement age for men is 65; it’s 63 for women).⁵
• Ready to increase your retirement income if you’re already retired.

Age 62: Eligibility for Social Security Benefits

At 62, you can start collecting Social Security benefits, opening up another avenue for retirement income. There is a tradeoff here, however.

If you start collecting Social Security at 62:

• You’ll be doing so before “full retirement age” (FRA), which is 67 for anyone born in 1960 or after.⁶
• Your benefits will be reduced by 30%.
• If you have a spouse, you’re partner’s benefits will drop by 35%.⁶

So, let’s say you start to collect Social Security benefits in 2024. If you are:

• 62, you’d get $2,710/mo.⁷
• 67 (your FRA), you’d collect $3,822/mo.⁷
• 70, you’d see $4,873/mo.⁷

Depending on your retirement income and your needs, there can be pros and cons to taking your Social Security benefits at 62, waiting until you reach your FRA, or waiting longer.

Age 65: Medicare Enrollment

At 65, you’re eligible for Medicare. That can help you start to reduce your healthcare costs if you know how to navigate the ins and outs of this complex system — and if you enroll during the “Initial Enrollment Period” (IEP).⁸

Your IEP is a 7-month timeframe that starts 3 months before you turn 65, ending 3 months after the month you turn 65.⁸ If you miss your IEP:

• You can face financial penalties, which increase the longer you wait.⁸
• You may have to pay a penalty known as the “Premium-Part A.”⁸
• You may have to wait and sign up for Part B coverage, paying a monthly late enrollment penalty for as long as you have this coverage.⁸

Age 66 to 67: FRA for Social Security

Your FRA is between 66 and 67, depending on when you were born.⁶ If you wait to claim Social Security benefits until your FRA, you can receive full benefits, without any reductions.⁷

Keep in mind that these benefits max out when you hit 70.⁷ While it can make sense to wait until FRA or 70 to start collecting your Social Security benefits, that may not be the best strategy for everyone’s retirement.

Age 73: Required Minimum Distributions (RMDs) from Retirement Accounts

By 73, you’ll need to start taking required minimum distributions (RMDs) from certain retirement accounts. That’s required by current U.S. tax laws, with the RMD varying based on:

• Your account balance as of December 31st of the previous year: RMDs apply to traditional IRAs, 401(k)s, 403(b)s, and most other tax-deferred retirement accounts.⁹
• Your life expectancy: This is determined by IRS life expectancy tables.$^9$ The older you get, the more your RMD will increase. As that happens, new risks of moving into higher tax brackets can arise.⁹

RMDs were designed to ensure retirement account withdrawals and, in turn, taxable income for the U.S. government. That’s why there can be hefty penalties for not taking RMDs.⁹

In fact, if you fail to take your RMD for a particular year (i.e., by December 31st of a given year), you could face a penalty of up to 50% of the amount you were supposed to withdraw but didn’t.⁹

Like Social Security benefits, RMDs can be complex. If you don’t plan for them properly, they can interfere with your retirement income plans and your tax mitigation strategies.

How to Manage Key Financial Milestones at 50 & Above

The above milestones may not be the only ones to plan for and keep track of. No matter where you’re at with retirement planning or essential financial milestones after 50, you don’t have to juggle it alone.

Navigating it all with the support of a financial professional can help you stay informed, shift gears whenever necessary, and make more informed choices, so you can live your best life in retirement.

Sources:

1. https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000
2. https://www.tsp.gov/bulletins/24-2/
3. https://www.irs.gov/taxtopics/tc558
4. https://www.irs.gov/retirement-plans/plan-participant-employee/when-can-a-retirement-plan-distribute-benefits
5. https://www.cnn.com/cnn-underscored/money/retirement-age
6. https://www.ssa.gov/benefits/retirement/planner/agereduction.html
7. https://faq.ssa.gov/en-US/Topic/article/KA-01897#:~:text=The maximum benefit depends on,maximum benefit would be %244%2C873.
8. https://www.medicare.gov/basics/get-started-with-medicare/sign-up/when-does-medicare-coverage-start
9. https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs
10. https://www.irs.gov/retirement-plans/traditional-and-roth-iras

This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2024 Advisor Websites.