What’s in a number?

Sept 8, 2020 | Lena Rizkallah, JD, CRPC®

At what age does middle age begin?  Nowadays, many will argue that age ‘ain’t nothin’ but a number’ and ‘you’re only as old as you feel.’  Or something like that.  Many people admit to feeling better at age 50 than they did at age 25.  As life expectancy has increased and people are working and living longer, and focusing on health, it makes sense to push the start of middle age down the road a bit. 

In the 1920s, “old age” began around age 55 and “very old age” around 65.   According to Collins English Dictionary, “Middle age is the period in your life when you are no longer young but have not yet become old.”  Got that?  Also, “Middle age is usually considered to take place between the ages of 40 and 60.”  According to this BBC article, middle age starts later for people in the UK—at around age 55.  And if you’re not sure where you stand, here are 25 ways to know if you are middle aged. 

For many people, along with the onset of middle-age comes the realization that retirement is not as far away as it used to be.  There are specific ages that trigger retirement-related milestones that allow us to accelerate our savings, begin distributions from retirement accounts or begin receiving governmental retirement and health benefits.

Here are the key age milestones in retirement:

Age 50: Whether you think hitting 50 will drag you kicking and screaming into middle age, or you’ve already made that mid-life crisis-inspired Lamborghini purchase a few years back, this is the age that kicks it all off.  At age 50, you can begin making “catch-up” contributions up to $6500 to your employer-sponsored accounts and an additional $1000 in an IRA.  That means for 2020, you can contribute up to $26,000 in a 401(k), 403(b) or 457b plan.  If you don’t have an employer plan you can contribute up to $7000 in 2020 to your IRA.

55: Most retirement plans allow us to make pre-tax contributions and enjoy tax-deferred growth on those contributions.  The point is to encourage saving for retirement so while there are a few exceptions for taking money out of retirement accounts early, most withdrawals taken before retirement are subject to a 10% penalty along with income tax. But if you are age 55 and leave your employer (separate from service), you may take distributions from your plan without paying the 10% early withdrawal penalty

Remember that the distribution must come from the employer plan so if you do an IRA rollover from the plan and take a distribution, the 10% penalty will apply.  Also, the distribution can be made once you separate from service at or after age 55.  For example, if you leave the company at age 50 and take a distribution at 55, the penalty will apply.

59 ½: This is age that individuals may begin taking penalty-free distributions from a retirement account.  Note that you are not required to begin distributions; you can start taking withdrawals at this age or anytime afterwards.

62: Individuals entitled to Social Security may claim benefits beginning at age 62.  Note that if you begin Social Security payments at 62, your benefit will be permanently reduced by 25-30% depending on your Full Retirement Age (FRA). 

65:  Individuals who qualify for Medicare may begin receiving benefits at age 65.  Most people should sign up for benefits at age 64 and 9 months in order to avoid delayed benefits.  Even if you are still working, you should sign up for Part A which covers hospital bills and is free to most everyone.  Most people also sign up for Part B at that time- or at a later date if they are still working and covered by an employer health plan, and individuals pay a premium for Part B. That is the age most people will decide whether to go with traditional Medicare or choose a Medicare Advantage plan which is an alternative to Medicare and has cost and coverage differences from Medicare.

66-67:  Depending on the year you were born, your Full Retirement Age (FRA) is somewhere between age 66 and 67.  For people who turn 62 in 2020, your FRA is age 66 and eight months.  If you wait to claim benefits at your FRA, you will receive 100% of your entitled benefit.

70: The majority of claimants file for Social Security benefits as early as they can—at age 62.  In fact, about 40% of claimants file early. This is despite the fact that if they wait to file after their FRA—until age 70, they will receive an additional 8% credit on top of their benefit for every year they don’t file between FRA and age 70.  After age 70, the 8% credit addition ends so it’s not worth it to file for benefits later than age 70.

72:  As mentioned, by age 59 ½, individuals can start taking penalty-free distributions from any type of retirement account including IRAs–but are not yet required to do so. However, at age 72, you must begin Required Minimum Distributions (RMDs) from retirement accounts which are specific minimum amounts based on the account value and your life expectancy and are set each year.  (Note that if you are still working, you do not have to begin RMDs from your employer plan until you stop working.) 

Previously the latest an individual can begin to take required distributions was age 70 ½  but the Setting Every Community Up for Retirement Enhancement (SECURE) Act pushed the starting age to 72 for those who are turning age 72 in 2020.  You must take your first RMD by April 1 following the year your turn age 72–and if you do wait until that time to take your first RMD, remember that you will also have to fulfill your RMD obligation for that current year as well by end of year.

Most of the time, ‘age ain’t nothing but a number,’ but when it comes to retirement planning your age matters.  Working with a financial advisor and developing a detailed retirement plan may help you keep these important milestones in mind so you can retire with confidence.