When does retirement begin? When you're 65? When the federal government allows you to begin withdrawing Social Security benefits? If the majority of your retirement income is tied to government- and employer-sponsored savings plans, withdrawing your funds too early my result in unintended taxes and fees. In order to keep as much of your money in your pocket as possible, you need to be aware of these important deadlines:
Age 50
If during your younger years you didn't make sizable contributions to your tax-deferred accounts like a 401(k) or 403(b), now you have the opportunity to play catch-up. Workers over the age of 50 can contribute an extra $5,500 above the standard annual limit of $17,500. A similar benefit is available for individual retirement accounts (IRA) as well. Folks over 50 can put in an addition $1,000 for a maximum annual total of $6,500.
Age 55
Ready to start putting your employer-sponsored savings in other areas? Age 55 is the first point at which you can withdraw money from a 401(k) without being slapped with a 10 percent penalty along with the taxes that you are already required to pay. Don't forget, though, that the penalty exemption only applies to the account connected to your most recent employer.
Age 59 and a half
The funds from all of your tax-deferred accounts including IRAs are now at your disposal. Withdrawals can now be made without the 10 percent penalty.
Age 62
If Social Security is still around when you reach 62, you can begin to collect benefits. Be cautious about collecting income at this age, because the federal government may reduce lifetime benefits by up to 30 percent for folks who retire "early."
Age 65
At this age, you can become eligible for Medicare coverage. You can sign up three months in advance to be covered during the month of your 65th birthday. If you're on the fence about whether or not you want Medicare, be warned that waiting too long could result in you having to pay higher premiums.
Age 65 is also the time when the Social Security Administration's wonky retirement rules come into play. If you were born in or earlier than 1937, you are eligible for full payments at 65. Full retirement age for people born between 1938 and 1942 ranges between 65 and two months and 65 and 10 months.
Age 66
On the day that they turn 66, anyone born between 1943 and 1954 can collect their full Social Security benefits. Those born between 1955 and 1959 will have to wait for an additional two to ten months before they can receive full retirement income.
Age 67
People born in or after 1960 still have a long way to go before they'll be seeing their Social Security benefits.
Age 70
For every year that a person postpones receiving government retirement benefits, an 8 percent bonus is tacked on to their future Social Security income. This ends at age 70, so at this point there really is no reason to hold out any longer.
Age 70 and a half
If you're still holding on to every dime in your tax-deferred accounts, Uncle Sam will come knocking six months after your 70th birthday. Like it or not, you will have to begin making withdrawals or you may face a penalty. Determining the exact amount that you can take out, while minimizing your tax liability can be complicated. It may be wise to consult with a tax or financial advisor on this subject.
Although most soon-to-be retirees try to stick to this plan, it doesn't mean that you have to. By exploring alternative methods for investing and saving, you can increase your wealth and retire on your own terms.