Checkpoints for retirement

With 77 million baby boomers starting to enter their retirement years, financial security will be paramount on their minds. These thoughts about achieving a secure retirement can focus on income-distribution strategies which may involve annuity products or asset-preservation strategies which may involve life insurance or long-term-care products.

Financial-service professionals often counsel their clients at certain key checkpoints based on attained age.

n Age 50: Catch up contributions to certain qualified plans. Clients who turn age 50 have the opportunity to contribute a larger amount to certain retirement plans depending on their eligibility to participate. At age 50, clients can increase their contributions to their 401(k), 403(b), and 457(b) plans by up to $6,000 under current law.

n Age 55: Early separation from service. Clients who turn 55 and are considering early retirement can elect to take taxable distributions from the qualified retirement plan (401(k), SEP, Profit Sharing) provided by their employer without a penalty tax.

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n Age 59 ½: Penalty-free IRA withdrawals. Once an individual reaches age 59 ½, taxable withdrawals can be made from an IRA without the 10 percent additional penalty tax for early distributions. If income is needed prior to age 59 ½, the 10 percent penalty tax can be avoided if “substantially equal periodic payments” based on life expectancy are made for at least five years.

n Age 62: Early Social Security retirement benefits. When an individual reaches 62, an election can be made to start receiving early Social Security payments. However, an early benefit at age 62 will only be about 75 percent of what the individual would have received if they had waited until the normal Social Security retirement age of 66.

n Age 65: Medicare elections for medical coverage. Medicare is available starting at age 65. An individual should contact Medicare about three months prior to age 65 to confirm their elections for medical coverage.

n Age 66: Full Social Security retirement benefits. For those born between 1943 and 1954, full Social Security retirement benefits are available at age 66 with no reduction in accrued benefits.

n Age 70: Maximum Social Security retirement benefits. Social Security retirement benefits continue to accrue from age 66 to age 70. However, work beyond age 70 no longer accrues additional Social Security retirement benefits.

n Age 70 ½: Required minimum distributions from IRAs. Starting at age 70 ½, individuals are required to take taxable distributions from their IRAs according to the age factors of the Uniform Lifetime Table. Failure to take RMDs from IRAs can result in a 50 percent penalty tax on top of the regular income tax. If a person does not need to spend the RMD, he/she can make annual gifts to children or grandchildren.

In addition, the choice of beneficiary designations on IRAs is critically important. At death, the IRA will become an “inherited IRA” for the designated beneficiary who must decide how the remaining taxable IRA funds will be distributed. Choices are typically lump sum, five-year distribution plan, or life-expectancy payout “stretching” the IRA over the lifetime of the beneficiary according to the age factor from the Single Life Table. •

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