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9 Key Ages for Retirement Money Decisions

Philip Moeller

The idea of retiring at 65 seems almost quaint these days. Even before the recession, rising numbers of people were working past their 65th birthdays, and this trend has accelerated during these past few years. For many, retirement is a forever-retreating goal. For others, moving to part-time work as part of an incremental retirement strategy makes sense.

[See 10 Steps to Fine-Tune Your Retirement Plan.]

Whatever your retirement prospects look like, there are many dates besides the day you stop working that can influence your decision. Here are different age milestones that might affect your retirement decisions.

59 1/2. This is the earliest age at which withdrawals from tax-deferred retirement accounts--401(k)s, 403(b)s, IRAs, and the like--may begin without incurring an early withdrawal penalty.

62. This is the earliest age at which you may begin collecting Social Security benefits. However, the amount of benefits you get will be only 75 percent of what they would be if you waited until you reached your full retirement age (66 or 67 for people born after 1943).

65. You are eligible for Medicare benefits when you turn 65. If you are still covered by employer health insurance (either directly or through your spouse's health plan), you do not need to sign up for Medicare right away. Otherwise, you have a seven-month window (three months before your 65th birthday up until four months after your birthday) to sign up. This is an important deadline: If you miss it, you may wind up paying higher Medicare premiums for the rest of your life.

[See How to Size Up Your Retirement Nest Egg.]

66. If you were born between 1943 and 1954, your full retirement age (FRA) for Social Security benefits begins with your 66th birthday. The FRA is an important date. It is the date at which you are entitled to 100 percent of your Social Security retirement benefit. Because you can begin benefits as early as age 62 or defer them as late as age 70, your FRA controls the percentage of your full benefits that you would receive at these other ages. It also affects the tax treatment of any outside income you earn. And it is used to determine when your spouse can collect benefits based on your covered Social Security earnings.

67. If you were born in 1960 or later, this is your FRA.

70. This is the latest age through which your Social Security benefits will increase for each year you defer beginning to collect benefits. If your full retirement age is 66, for example, your benefits will rise by about 8 percent a year each year until you turn 70. They will not increase after that date, so there is no benefit to deferring benefits past your 70th birthday. In addition to collecting 132 percent of your FRA benefit if you wait until age 70, you would also collect any annual cost-of-living adjustments. So your "profit" for waiting each year is a return of 8 percent plus the rate of inflation.

[See Retirement Plans That Weather Economic Storms.]

70 1/2. If you are retired, you must begin taking money from your tax-deferred retirement accounts when you reach this age. The smallest amount of money you can withdraw without incurring a tax penalty is called your RMD, or required minimum distribution.

The size of your RMD is calculated by the government based on life-expectancy tables. Legislation is regularly introduced, including in the Obama Administration's proposed 2013 budget, to relax RMD rules. The goal of the proposals is to give retirees more control over the timing of their account withdrawals.

85. This is a standard date at which payments begin for what are called longevity annuities. These are deferred annuities purchased 20 or even 30 years earlier. They are designed primarily for people who are worried about running out of money before they die. Because many people will have died before turning 85, insurance companies are able to provide attractive rates for these products. And because retirees know how much money they would begin receiving should they survive to age 85, they can spend down their other assets by that date, should they choose, without fear of later running out of money.

Your Age at Retirement. This is, of course, the most important of all the ages listed here. Good luck!

Twitter: @PhilMoeller

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