It is never too early to begin thinking about retirement. Even if that season of life is decades away for you, the financial decisions that you make now can have a significant impact on your quality of life later down the road. As you begin planning for your future, it is important to have a guideline for each age in life. Here are ten stages of life and what you need to be doing at each age to best prepare your finances for life after retirement:
UNDER AGE 49: Now is the time to be aggressive with funding your retirement accounts. Leverage the power of compounding interest when you are young and you will be set in the later years. In 2019, the federal 401(k) contribution limit is $19,000. You can add an additional $6,000 in an individual retirement account (IRA) to bring the total contribution to $25,000.
AGE 50: Once you hit age 50, you can add an additional $6,000 to your 401(k) per year. Take advantage of this increased limit to ramp up the savings during your prime earning years. You can also boost the IRA contribution by another $1,000. This puts your contribution maximum at $32,000.
AGE 55: Now is when you can begin withdrawing retirement funds without penalties from a past employer. This allowance can be beneficial if you are simply cutting back hours and need funds to bridge the gap.
AGE 59 1/2: This is the magic age in which you can begin taking out money from your IRA and other retirement accounts without accruing the standard ten percent withdraw penalty.
AGE 62: Age 62 is when you become eligible to receive social security payments. However, it is important to proceed with caution, as monthly payments are reduced for the remainder of your life if you begin withdrawing early. By choosing to begin taking out funds at this age, your monthly allowance is reduced by 30 percent. This amount decreases the longer you wait.
AGE 65: As the benchmark standard retirement age, 65 is when you become eligible for Medicare. Even if you are not withdrawing on your retirement funds, it is important to sign up for this service three months prior to turning 65 so that you do not incur costly additions to your monthly premiums.
AGE 66: Depending on when you were born, this is the age when you may receive the full benefit of your social security payment. Those people born between the years 1943 and 1954 qualify for the entire benefit at age 66. If you were born between 1954 and 1959, the age in which you receive your full benefit kicks in at different intervals during the year that you are 66.
AGE 67: For those people born after 1960, 67 is the age in which the full social security benefit is realized.
AGE 70: Once you hit age 70, it is no longer beneficial to delay receiving social security benefits. If you have not already done so, now is the time to begin receiving these benefits.
AGE 70 1/2: Anyone over the age of 70 1/2 is no longer allowed to receive a tax deduction for IRA contributions. Likewise, you are now mandated to begin withdrawing funds from your 401(k) and IRA accounts and pay the income tax on these withdraws. The only exception to this rule is if you are still working and have a 401(k) account with that current company.