Retirement planning is a process that can take many years and, as you progress along the track, you’ll encounter opportunities, incentives and deadlines tied to specific ages. In order to avoid penalties and tap into benefits, you will often have to take certain steps by certain birthdays. And planning effectively for a secure and comfortable retirement depends not only on doing the right thing, but doing it at the right time. A financial advisor can assist you in evaluating options, calculating tradeoffs and optimizing key moves at each stage of preparing for your retirement.
Retirement Planning Basics
Retirement planning establishes goals for income, assets, insurance, health care, housing, leisure pursuits and other aspects of life after your career ends. It involves estimating costs, choosing accounts like 401(k)s and individual retirement accounts (IRAs) to save money, select investments and track progress.
The ultimate aim of a retirement plan is to accumulate enough assets to replace a suitable portion of the income previously gained form working through other means, including retirement plan withdrawals, Social Security and pension benefits, investment income and other sources. Proper planning boosts your chances of enjoying a comfortable lifestyle after leaving the workforce.
Planning for the Ages
Many retirement planning opportunities, incentives and deadlines are tied to specific ages other than the age at which you actually retire. These include ages to receive full Social Security benefits, make penalty-free 401(k) withdrawals or qualify for Medicare, for instance.
Because of this, certain steps, such as increasing contributions and having to start taking withdrawals, also correspond to certain ages. Retirement planning uses age milestones to exploit advantages and avoid hazards like missed deadlines or premature withdrawals. Tracking key ages helps you make the most of programs while avoiding lost benefits or penalties.
Retirement Planning Steps by Age
Here are ages that represent major points in retirement planning, along with the steps that correspond to that age:
Under Age 50
- Establish goals. Envision the ideal lifestyle for your retirement. Will you travel, relax, pursue hobbies, volunteer or work part-time?
- Use retirement calculators to estimate required savings and returns. Increase contributions whenever possible, especially after raises.
- Contribute the maximum to workplace plans like 401(k)s. Also consider contributing to IRAs for their added flexibility.
- Think about investing aggressively at this age, as you have time to ride out volatility. Don’t forget to rebalance to manage risk as you age.
- Get recommended insurance including disability, life, home and auto to cover risks.
- Designate beneficiaries for retirement accounts and insurance policies.
- Make catch-up contributions to 401(k) and IRA plans as limits rise by $1,000 and $7,500, respectively.
- If you leave your current employer, you may be able to take penalty-free 401(k) withdrawals from that employer’s retirement plan after this age.
Age 59 1/2
- Withdrawals from IRAs no longer incur penalties. Still, consider leaving funds invested if you can.
- If you are the surviving spouse of someone who paid into Social Security, you can collect survivor benefits starting now.
- Now you qualify for Social Security retirement benefits, although at a reduced rate. If you don’t claim now, your monthly benefit rises with time. Do the calculations to decide if you want to increase your benefit by waiting to claim.
- Enroll in Medicare to participate in the government-backed national health insurance plan. There’s a seven-month enrollment window including your 65th birthday month.
- These are Social Security’s current full retirement ages. Waiting until this age to claim increases your monthly benefit. Waiting longer further increases benefits.
- Delaying Social Security beyond age 70 earns no added benefit, so claim your increased payments now.
- You must start IRA and 401(k) required minimum distributions (RMDs) now.
- Keep taking RMDs to avoid penalties.
- Keep reviewing goals and adjust strategies. Seek guidance from financial professionals.
These are just some of the major age-related steps. For instance, at age 59 ½ you can inherit a 401(k) without having to pay an early withdrawal penalty.
Major steps in retirement planning correspond to ages that create pivotal opportunities and risks. Contributing more before 50, making penalty-free 401(k) withdrawals at 55 and claiming Social Security from 62 to 70 are examples. Knowing key ages helps maximize advantages and avoid lost benefits.
Tips for Retirement Planning
- Partnering with a financial advisor allows you to benefit from professional expertise and resources when making decisions for your retirement planning. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Get an answer to a vital question retirement planning question by estimating your future government retirement benefits using SmartAsset’s Social Security Calculator.
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