Your Retirement Timeline Checklist

Our team of advisors at Brite USA have years of experience specializing in both the Domestic and International Pension market. Working with US based clients most are in the process of building their US retirement benefits, usually in the form of a work based 401(k) or an Individual Retirement Account (IRA). While there are similarities between International and Domestic Pensions, there are also various nuances that will be detailed in the coming weeks over a series of emails written by our advisors.

Firstly, an overview of your retirement timeline that will cover the key ages that are often overlooked when it comes to the important financial planning aspects post-employment.

Your Retirement Timeline

Age 50 – Catch Up Contributions

From the age of fifty the IRS allows for catch up contributions on both your 401(k) and IRAs with an additional $6,500 for the former and $1,000 for the latter pushing your total allowable contributions to $26,000 and $7,000 respectively.

The Rule of 55

This rule is an IRA guideline to allows you to avoid paying the 10% early withdrawal penalty on withdrawals from your 401(k) and 403(b) so long as you leave your job during or after the calendar year in which you turn 55. It can be applied regardless of the reasons for separation meaning you can advantage of this whether you are laid off or just want to retire early.

The Age 59 ½ Rule

Usually with your 401(k) if you look to drawdown before the age of 59 ½ you will have to pay a 10% withholding tax on top of your marginal rate of income tax. There are however several circumstances by which there will be no 10% with one listed above, however, please see here for a more comprehensive list.

Age 62 – Social Security

At this age you can get access to your Social Security benefits but you will be subject to a penalty based on the number of months before your 67th birthday.

Year of Birth

Full Retirement Age (FRA)

Months Between 62 and NRA

A $1,000 Benefit Reduces To

Percentage Reduction

$500 Spousal Benefit Reduces to

Percentage Reduction of Spousal Benefit

1943 -1954

66

48

$750

25%

$350

30.00%

1955

66 and 2 months

50

$741

25.83%

$345

30.83%

1956

66 and 4 months

52

$733

26.67%

$341

31.67%

1957

66 and 6 months

54

$725

27.50%

$337

32.50%

1958

66 and 8 months

56

$716

28.33%

$333

33.33%

1959

66 and 10 months

58

$708

29.17%

$329

34.17%

1960 onwards

67

60

$700

30.00%

$325

35.00%

Age 65 – Medicare

From this age you are eligible for Medicare and could be entitled to premium free Hospital Care (Part A) however everyone has to pay for Part B which is usually deducted from your Social Security, Railroad Retirement or Civil Service retirement check.

There is an online tool to check your eligibility and to estimate your premium.

Age 66 and 2 Months – Full Retirement Age

This year (2021) marks the first year of your of the increased full retirement age as in figure 1. This is set to increase each year by two months until the year 2027 at which point the full retirement age will be 67.

Age 70

While the penalty for accessing your Social Security early was detailed above, there is also a benefit for delaying them to age 70 in which case you would receive additional income for each year they are delayed for.

Year of Birth

12-Month Rate of Increase

Monthly Rate of Increase

1933-1934

5.5%

11/24 of 1%

1935-1936

6.0%

1/2 of 1%

1937-1938

6.5%

13/24 of 1%

1939-1940

7.0%

7/12 of 1%

1941-1942

7.5%

5/8% of 1%

1943 or later

8.0%

2/3 of 1%

Even if you do delay your benefits, be sure to still sign up for Medicare as in some circumstances your coverage might be delayed, or it might cost more.

Age 72 (or 70 ½) – Required Minimum Distributions

While you have spent your working life building a nest egg in a tax deferred account, the IRS now requires you to start taking a certain level of distributions by April 1st the following year in which you turn 72. For example, those who turn 72 between January 1st and December 31st 2021 must start taking minimum distributions by April 1st 2022. This rule applies to the following accounts:

  • Traditional IRAs
  • SEP IRAs
  • SIMPLE IRAs
  • 401(k) plans
  • 403(b) plans
  • 457(b) plans
  • Profit Sharing Plans
  • Other Defined Contribution Plans

This rule was previously set at age 70 ½ however it updated to 72 from December 31st 2019 (those born before July 1st 1949) meaning you should already be aware of this rule and taking the minimum distributions.

Considering there is a 50% tax penalty on any amount of unused RMD its important to understand your annual requirements so for rough guidance on the level of your RMDs please see the Schwab RMD Calculator or get in touch with your advisor.

$26,000 link – https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits

$7,000 link – https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits#:~:text=More%20In%20Retirement%20Plans&text=For%202021%2C%202020%20and%202019,taxable%20compensation%20for%20the%20year

https://www.irs.gov/taxtopics/tc558

Penalty link https://www.ssa.gov/benefits/retirement/planner/agereduction.html

Medicare – https://www.medicare.gov/eligibilitypremiumcalc

Credit link https://www.ssa.gov/benefits/retirement/planner/delayret.html

Schwab RMD Calculator – https://www.schwab.com/ira/understand-iras/ira-calculators/rmd

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Tel: +1 646 891 5990.

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Tel: +1 347 471 7519

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Brite Advisors USA, Inc. is a Registered Investment Adviser with the United States Securities and Exchange Commission: File Number: 801-78041. Such registration does not imply any level of skill or training.

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