9 Key Milestones for Retirement Planning

As you approach retirement, you want to make sure you’re maximizing what’s likely decades of savings that you’ll use to enjoy the years when you no longer have to work. That’s where a little knowledge and a great financial plan can help.

Consider this: If you are married or partnered, you and/or your spouse could be retired for 25 to 30 years. While the length of your retirement will be affected by numerous factors, including your health, wealth and when you retire, the CDC says the average 65-year-old woman can expect to live to age 86, while a 65-year-old man can expect to live to age 83.¹  A lot can change in 25 to 30 years, and the financial decisions you make leading up to retirement can have a profound impact on your preparedness for those changes.

Many of the important decisions you make will relate to a series of retirement milestones that begin at age 50. Depending on your personal situation, these milestones may affect critical aspects of your financial plan and retirement, including:

• Your ability to take advantage of tax savings as you accumulate wealth for retirement.
• When you can begin drawing retirement income.
• Your access to health care.

As you prepare for retirement, it’s important to have an experienced financial advisor at your side. Together, you can build a comprehensive financial plan with these key dates in mind so you’ll be fully prepared to capitalize on the opportunity each offers to help maximize your financial security throughout retirement.

9 Key Retirement Milestones

These are the nine key retirement milestones to watch for:

1. Age 50: Catch-up Contributions

Thanks to catch-up contributions, once you reach age 50, the maximum amount you are eligible to contribute to many retirement accounts increases. As the name implies, catch-up contributions were designed to help Americans who may have gotten a late start saving for retirement catch up just as they enter their peak earning years. But even if you are a high-income earner and/or diligent saver who feels you do not need to “catch up” on saving, catch-up contributions still offer significant tax benefits and the opportunity to accelerate your retirement savings objectives if you have the available cashflow.

Here are the contribution limits for 2023:

• Qualified plans, including 401(k) and 403(b) accounts: The regular contribution limit is $22,500, but if you are 50 or older, you can contribute an additional $7,500 as a catch-up contribution, for a maximum combined contribution of $30,000.
• Individual retirement accounts (IRAs): The regular contribution limit is $6,500, but if you are 50 or older, you can contribute an additional $1,000 as a catch-up contribution for a maximum combined contribution of $7,500.

Thanks to the SECURE Act 2.0, changes to catch-up contributions are on the horizon. Here’s what you’ll want to watch out for:

• An increase to the IRA catch-up contribution in 2024: For IRAs, the catch-up contribution is currently set to $1,000 and does not adjust for inflation. However, beginning in 2024, SECURE Act 2.0 indexes the IRA catch-up contribution amount for inflation in $100 increments.
• An increase in most retirement plans’ catch-up contributions for 60- to 63-year-olds starting in 2025: In 2025, catch-up contributions for individuals who are 60 to 63 will increase. In most cases, catch-up contributions will increase to $10,000 per year or 50 percent more than the regular catch‐up contribution amount (whichever is greater) for these individuals. The increased amounts will be indexed for inflation annually

2. Age 55: Penalty-free 401(k) Withdrawals (AKA the Rule of 55)

If you plan to retire early, the Rule of 55 could be an integral component of your retirement plan. The Rule of 55 can help you fund an early retirement by giving you the option of withdrawing funds from your current employer-sponsored 401(k) or 403(b) plan without incurring a 10 percent penalty.

To take advantage of the Rule of 55, you must leave your job either in or after the year you turn 55, and your plan must allow you these withdrawals. It’s important to note that regular income tax still applies on non-Roth withdrawals and that the rule does not apply to IRAs or 401(k) or 403(b) funds that you have rolled over into an IRA.

3. Age 59½: Penalty-free Retirement Plan Withdrawals

Once you reach age 59½, you can begin taking penalty-free withdrawals from your traditional IRA or workplace retirement plan. You can also begin withdrawals from your Roth IRA, assuming the account has been open for at least five years. Here again, if you plan to retire early, penalty-free withdrawals from these retirement accounts as early as age 59½ may be able to help you fund your early retirement.

4. Age 60: Eligibility for Survivor’s Benefits

If you were married to your now-deceased spouse (or deceased ex-spouse) for at least 10 years and don’t remarry until after turning 60, at age 60 you become eligible for Social Security survivor’s benefits. If you also worked for at least 40 quarters (the equivalent of 10 years) during your lifetime, survivor’s benefits give you the option of collecting benefits based on your own work record or the work record of your deceased spouse (or deceased ex-spouse) or the option to integrate these two benefits to help maximize your cash flow and/or lifetime income. If you are eligible for Social Security survivor’s benefits, it’s worth having a discussion with your financial advisor about how you can use this benefit to boost your financial security in retirement.

5. Age 62: First Eligibility for Social Security

You can claim Social Security benefits as early as age 62 (unless you are eligible for survivor’s benefits). But just because you can doesn’t mean you should. For many Americans, there is good reason to delay. Currently, for each year you delay Social Security benefits, you’ll receive an 8 percent increase in your annual benefit until you reach age 70. Your financial advisor can help you see how Social Security fits into your broader financial plan so that you can be more strategic about when you claim.

6. Age 65: Medicare Eligibility

At 65, you become eligible for Medicare. If you are already receiving Social Security benefits, you’ll be automatically enrolled in Medicare Part A (hospital insurance). If you opt to delay your Social Security benefits until later, you have a seven-month period (beginning three months before the month you turn 65 and ending three months after the month you turn 65) to enroll. Not signing up for Medicare during this window may result in a 10 percent premium increase for each 12-month period you delay enrollment.

When you become Medicare eligible, you’ll also want to evaluate any additional Medicare coverage needs, such as prescription drug coverage (Part D) and Medigap (coverage for out-of-pocket expenses). It’s also important to note that Medicare does not cover long-term care expenses, and with long-term care costs on the rise, having a plan to pay for long-term care is becoming an increasingly important consideration.

7. From Age 66 to 67: Full Retirement Age for Social Security

Full retirement age for Social Security means that you are eligible to receive your standard Social Security benefit, also known as your primary insurance amount. Full retirement age varies depending on when you were born. So, if you were born:

• Between 1943 and 1954, you reached full retirement age at 66.
• Between 1955 and 1959, your full retirement age is somewhere between 66 and 67.
• In 1960 or later, you’ll reach full retirement age at 67.

8. Age 70: Maximum Social Security Benefit for Delaying Retirement

While you can receive your full benefit from age 66 to 67 (depending on when you were born), you can receive more than the standard amount if you choose to delay your retirement. As previously mentioned, each year you opt to delay retirement until age 70, your benefit will increase by 8 percent. That means that by waiting until age 70, you’ll max out your benefit, which can be as much as 132 percent of your Primary Insurance Amount (PIA). There is no additional increase in benefit amount after you reach 70.

9. Age 73: Required Minimum Distributions (RMDs) Begin

Thanks to the SECURE Act 2.0, as of Jan. 1, 2023, generally you must take RMDs from your retirement plan beginning at age 73 (previously age 72). Beginning in 2033, the SECURE Act 2.0 increases the RMD age to 75.

It is worth noting that there appears to be a drafting error in the legislation that may affect individuals born in 1959, as these individuals appear to meet both the age 73 and 75 definitions. While it is expected that this will be corrected through future legislation, as of this writing we do not know what that correction will look like.

Maximize the Opportunity These Retirement Milestones Offer

If you’ve already spent decades saving and planning for retirement, you may feel that the hard work is behind you. And while much of it is, it’s important not to lose focus as you near retirement. Being prepared for these key milestones can help you maximize your savings. By working with an experienced financial advisor on a comprehensive financial plan, you’ll be well positioned not only to maximize the opportunity these milestones afford but to feel comfortable that you have a plan to reliably create the income you’ll need to enjoy your retirement.

This publication is not intended as legal or tax advice.  Financial Representatives do not render tax advice.  Consult with a tax professional for tax advice that is specific to your situation.