Retirement Planning Rules at 50+
In a perfect world, we would all start planning for our retirement when we start our first full-time job. We would contribute diligently to our employer sponsored retirement plans, IRAs, and other savings vehicles. We would avoid spending frivolously. By doing this from day one, chances are we would accumulate enough money to meet our needs and satisfy our wants, retire at the time we desire, and live happily ever after.
But we do not live in a perfect world. During those first two or three decades of post-school adult life, there are many things competing for our hard-earned dollars. During the first few years it may be student loans, rent and other living expenses, auto loans, etc. As time goes on, it may also include a home mortgage and child-related expenses. Later, there may be college costs, weddings, and, possibly, support for our aging parents. And, of course, there is spending throughout for enjoyment such as dining out, entertainment, and vacations. Saving money can be a challenge.
If you are in your 50s and have not done much retirement planning, now would be a good time to get started. It is essential that know where you stand. It is possible you are on target to be able to retire when you would like to, but it is also possible you will have to make some adjustments to your desired retirement date or lifestyle.
Even with a late start, it is not too late to live a financially secure retirement if you take the right steps. The good news is that people over 50 tend to have more money they can save, as they are often in their peak earning years and their children may be grown up and "off the payroll".
To help you get started, here are some of the rules at key ages related to retirement planning:
- At age 50, you become eligible to make catch-up contributions to your retirement accounts. In 2021, the contribution limits for persons aged 50 and older are:
401(k) - $26,000
IRA - $7,000 SIMPLE
IRA - $16,500
- At age 55, you are eligible for penalty-free distributions from your current employer's retirement plan.
- At age 59½, you can take distributions from any employer-sponsored retirement plan or IRA account without an early distribution penalty.
- At age 60, widows and widowers are eligible to apply for Social Security survivor benefits.
- At age 62, you are eligible to apply for Social Security retirement benefits.
- At age 65, you become eligible for Medicare benefits.
- Social Security full retirement age is from age 66 to 67, depending on the year you were born:
1954 or before: 66
1955: 66 and 2 months
1956: 66 and 4 months
1957: 66 and 6 months
1958: 66 and 8 months
1959: 66 and 10 months
1960 or later: 67
- Age 70 is when social security retirement benefits reach their maximum.
Please be aware the rules for Social Security, Medicare, and IRA distributions are tricky and mistakes can be costly. Before taking any actions, be sure you understand the ramifications.