Plenty of American workers never give a thought to retirement planning until they are 50 or older, but financial experts say the best retirement plans begin with the first paycheck. While teenagers and individuals in their 20s may not consider retirement to be a top priority, opening an IRA or a 401(k) at a young age can make saving during later years much easier.
Retirement planning for middle years
Individuals who are younger than 50 are in the best position to accumulate funds for retirement. A retirement calculator can help you evaluate how much to save so that you can eventually stop working.
Those 50 and older will be facing some additional decision making in upcoming years for their retirement planning.
- At 50 and older, individuals are allowed by the IRS to make extra “catch-up” contributions to IRAs and 401(k) plans.
- At 59½, penalty-free withdrawals from an IRA are allowed, although financial planners suggest that one of the best ways to make your retirement smoother is to wait as long as possible before accessing any of your retirement funds.
- At 62, individuals may begin drawing Social Security benefits. However, when you claim before your full retirement age (which ranges from age 65 to 67, depending on year of birth), your benefits are reduced. Those who wait until after their full retirement age to collect will get a “delayed retirement credit” up to age 70. There is no benefit to waiting beyond age 70 to collect Social Security.
- At 62, homeowners may be eligible for a reverse mortgage, depending on the amount of equity in their home. Because payouts for a reverse mortgage are based on a sliding scale according to the age of homeowners, waiting a few years will increase the amount of equity available to tap.
- On April 1 following the year you turn age 70½, minimum distributions are generally required from traditional IRAs and 401(k) plans. Many seniors opt to take the distribution close to the deadline so that their funds can grow tax-deferred for the longest possible time, but you can take the withdrawals in installments if you prefer.
Regardless of your age, retirement planning should always be part of your overall financial plan.