Each type of retirement benefit has a different eligibility age. Your age plays a big role in how much you can expect to receive from Social Security and what you need to do to avoid retirement account penalties. Remember to factor these important ages into your retirement plan.
Key Milestones for Retirement
— Max out retirement accounts at age 49 or younger.
— Take advantage of catch-up contributions beginning at age 50.
— Your 401(k) withdrawal age might be 55.
— The IRA retirement age is 59 1/2.
— At age 62 you are eligible to begin Social Security payments.
— Medicare eligibility begins at age 65.
— The Social Security full retirement age is 66 for most baby boomers.
— Age 67 is the Social Security full retirement age for younger generations.
— You can boost your monthly Social Security payments if you delay claiming until age 70.
— The 401(k) and IRA required minimum distribution age is 72.
Max Out Retirement Accounts at Age 49 or Younger
Workers who begin to save for retirement early in their career are best able to take advantage of compounding investment returns. Saving in a retirement account can additionally qualify you for tax breaks and employer contributions. The 401(k) contribution limit is $19,500 in 2021. Workers can also deposit up to $6,000 in a traditional or Roth individual retirement account.
"Roth accounts typically favor younger employees. The idea is to pay tax now at a lower rate, given your wages are expected to increase, and then have your investments grow tax-free," says Rick Vazza, a certified financial planner and president of Driven Wealth Management in San Diego. "Using the traditional component of an account may be more appropriate for individuals already in peak earning years. Theoretically, they can avoid the tax in the currently high-earning years, and pay the tax at a potentially lower tax rate in retirement."
[Read: How Much Should You Contribute to a 401(k)?]
Take Advantage of Catch-Up Contributions Beginning at Age 50
Beginning at age 50 you can ramp up your retirement account contributions. Employees age 50 and older can make 401(k) catch-up contributions of up to $6,500 for a maximum possible 401(k) contribution of $26,000 in 2021. Those age 50 and up can also deposit an extra $1,000 in an IRA, or $7,000 in total for 2021.
"The increase to the contribution limit is fantastic for those who can take advantage of maxing out those contributions," says Laura Morganelli, a certified financial planner for Captrust in Allentown, Pennsylvania. Making catch-up contributions allows older workers to tuck additional money into retirement accounts and qualify for a bigger tax deduction in the years leading up to retirement.
Your 401(k) Withdrawal Age Might Be 55
If you leave your job in the year you turn age 55 or older, you can take penalty-free 401(k) withdrawals from the account associated with your most recent job. The rule of 55 allows you to avoid the 10% early withdrawal penalty, but income tax will still apply to each traditional 401(k) distribution. However, if you roll your 401(k) account balance over to an IRA, you will need to wait until age 59 1/2 to take IRA withdrawals without penalty.
The IRA Retirement Age Is 59 1/2
The 10% early withdrawal penalty on IRA distributions ends at age 59 1/2. However, traditional IRA distributions are not required until after age 72. Income tax will be due on each withdrawal from your traditional IRA.
[See: 12 Ways to Avoid the IRA Early Withdrawal Penalty.]
At Age 62 You Are Eligible to Begin Social Security Payments
You can start collecting your Social Security payments at age 62. However, your monthly payments will be reduced if you begin payments at this age.
"If your full retirement age is 67 and you retire at 62, you are looking at a 30% per month reduction," says Alexandra Baig, a certified financial planner at Companions On Your Journey in Brookfield, Illinois.
Also, if you work after signing up for Social Security, your benefit checks could be temporarily withheld if you are paid more than the annual earnings limit. "If you retire before your full retirement age and continue to work and earn more than $18,960 per year, for every $2 above this amount, Social Security will reduce your benefit by $1," Baig says. Once you reach your full retirement age, your Social Security benefit will be recalculated to give you credit for the benefit withholding and your continued earnings.
Medicare Eligibility Begins at Age 65
You can first enroll in Medicare during a seven-month period that begins three months before the month you turn 65. Take care to sign up on time, because your Medicare Part B premiums will increase by 10% for each 12-month period you were eligible for benefits but did not enroll. If you delay enrollment because you or your spouse is covered by a group health plan at work, sign up for Medicare within eight months of leaving the job or health plan to avoid the penalty.
The Social Security Full Retirement Age Is 66 for Most Baby Boomers
People born between 1943 and 1954 qualify for their full Social Security benefit at age 66. The Social Security full retirement age gradually increases from 66 and two months to 66 and 10 months for those born between 1955 and 1959. For example, the full retirement age is 66 and six months for people born in 1957. Once you turn your full retirement age, you can work while receiving Social Security benefits without having any of your payments withheld.
[Read: The Most Popular Ages to Collect Social Security.]
Age 67 Is the Social Security Full Retirement Age for Younger Generations
The Social Security full retirement age is 67 for workers born in 1960 or later. Millennials and younger generations need to wait until age 67 to qualify for their full Social Security benefit.
You Can Boost Your Monthly Social Security Payments if You Delay Claiming Until Age 70
Social Security payments increase by 8% for each year you wait to start your payments between your full retirement age and age 70. After age 70, there is no additional benefit to waiting to sign up for Social Security.
"If you wait until after full retirement age to claim your retirement benefit, the amount you receive will be greater than your primary insurance amount," says Mike Piper, a certified public accountant and author of "Social Security Made Simple." "The increase is two-thirds of 1% of your primary insurance amount for each month you wait beyond full retirement age up to age 70, beyond which there is no increase for waiting."
The 401(k) and IRA Required Minimum Distribution Age is 72
Those over age 72 are typically required to take annual withdrawals from 401(k)s and traditional IRAs and pay the resulting income tax bill. The penalty for missing a required minimum distribution is a stiff 50% of the amount that should have been taken out.
Your first distribution must be taken by April 1 of the year after you turn 72. After that, annual withdrawals are due by Dec. 31 each year. Those who delay the first withdrawal until April will need to take two distributions in the same year, which could result in a big tax bill that year.
However, there are several exceptions to the required IRA and 401(k) withdrawal age. If you continue to work after age 72 for a company you don't own, you can delay 401(k) withdrawals from the retirement account at that job until you actually retire. A qualified charitable distribution from an IRA directly to a qualifying charity can also satisfy the minimum distribution requirement. Roth IRAs don't have withdrawal requirements in retirement.