To make the most of your retirement benefits, including 401(k)s, individual retirement accounts, Social Security and Medicare, you need to meet deadlines. If you don't take action within the cutoffs, you could miss out on benefits or trigger penalties and fees. Take care to factor these ages into your retirement planning:
Workers age 50 and older can defer taxes on as much as $23,000 in 401(k) plans, 403(b) plans and the federal government's Thrift Savings Plan and $6,500 in IRAs in 2014. That's $5,500 and $1,000 more, respectively, than younger people can defer taxes on.
If you leave your job in the calendar year you turn 55 or later, you can take 401(k) withdrawals from the retirement account associated with the job you most recently left without having to pay the 10 percent early withdrawal penalty. However, if you roll the money into an IRA, you'll have to wait until age 59½ to avoid the penalty.
Investors no longer have to pay a 10 percent early withdrawal penalty on traditional 401(k) and IRA account distributions after age 59½. However, income tax will still be due on each distribution.
Workers can sign up for Social Security beginning at age 62, but payments are permanently reduced by as much as 30 percent if you sign up at this age. Also, if you work and collect Social Security benefits simultaneously at 62, part or all of your payments could be temporarily withheld.
You can sign up for Medicare beginning three months before your 65th birthday, and coverage can start as early as the month you turn 65. If you don't sign up on time (or within eight months of leaving a job with group health coverage), your Medicare Part B and D premiums could permanently increase, and you could even be denied supplemental coverage.
Baby boomers born between 1943 and 1954 are first eligible to collect unreduced Social Security payments at age 66. After that, the full retirement age gradually increases from 66 and two months for people born in 1955 to 66 and 10 months for workers born in 1959. Once people hit their individual full retirement age, benefits are no longer withheld for working and collecting Social Security benefits at the same time.
The Social Security full retirement age is 67 for everyone born in 1960 or later. Most members of Generations X and Y will need to wait until 67 to collect unreduced Social Security payments and avoid the earnings limit if they want to work and collect Social Security benefits at the same time.
Social Security payments will increase by about 8 percent per year if you delay starting benefits up until age 70. After age 70, there is no additional benefit to waiting to claim Social Security.
Distributions from traditional IRAs and 401(k)s are required after age 70½, and income tax is generally due on each withdrawal. Employed individuals can delay distributions from their current 401(k) until April 1 of the year after they retire (unless they own 5 percent or more of the company sponsoring the plan). And people age 70½ and older are no longer eligible to get a tax deduction for traditional IRA contributions.
- Retirement Issues