Turning 50 can mean many things to many people: a milestone of 5 decades on this planet, a renewed perspective on living life to the fullest, perhaps some biological changes (I’ll just leave that right there), a time to be proud of your accomplishments while acknowledging your runway is not as long as it used to be. And while it also means your youth may be in the rear-view mirror, there’s plenty I don’t miss about being young – maybe I’ll save that for a future newsletter.

To be honest, I turned 50 a few years ago and anyway you want to slice it, an achievement in and of itself.  For those that know me well, the journey got off to a rough start but by and large I made it in one piece (mostly). No significant jail time (although Mexico comes to mind), no embarrassing tattoos (oh, wait…that was Australia), lucky enough to live and work in some great cities (Boston, San Diego, Manhattan, London), a slight addiction to golf but nothing to call the psychiatrist about, a long career in financial services, a beautiful family, friends in low places…and high ones too, a few pounds overweight but reasonably healthy, more hair on my knuckles than my head but succumbed to that reality years ago, and perhaps a few too many reader/cheaters around the house (7 at last count), but by all measurements I’m a modern-day success story (insert laugh track)! 

And while that’s all good on the personal side, 50 can also be meaningful in terms of your financial journey, marking important milestones in retirement planning and your financial life.  Hint: this is where the article gets boring but stick with me. So, here’s a look at why, with a focus on each milestone birthday after 50 and the role it can play in your overall financial wellness.

Age 50: Catch-Up Contributions

When you turn 50, you can start to make "catch-up" contributions to your 401(k)s, 403(b)s, IRAs, and other retirement accounts.

These catch-up contributions don’t replace standard contributions; instead, they increase the contribution limits at age 50, letting you put more into your retirement accounts as a way to “make up” for previous years, when contributions may not have been maxed out.

Notably, catch-up contributions:

1. Differ by type of retirement account
2. Are updated annually for inflation by the Internal Revenue Service (IRS)

The table below shows the catch-up contributions permitted for different types of retirement

accounts in 2024.^1,10

In 2025, these catch-up contributions will change again, with across-the-board updates due to the Secure Act 2.0. This includes a $10,000 catch-up contribution in 2025 for 401(k)s.²

Age 55: Penalty-Free 401(k) Withdrawals (Rule of 55)

Are you planning to retire between 55 and 59½? If so — and if you have a 401(k) or a 403(b) retirement account, you could start taking advantage of the Rule of 55 as soon as your 55th birthday.

If you do, you can start withdrawing funds from your 401(k) or your 403(b) without incurring the 10% early withdrawal penalty.³

Please note that:

• Income taxes will still apply to any withdrawals.
• The Rule of 55 only applies to 401(k) or 403(b) accounts associated with the job from which you’re retiring after the age of 55 and before 59 ½.³
• The Rule of 55 does not apply to IRAs or 401(k)s from a previous employer.³

From early retirement or unexpected layoffs, the Rule of 55 can offer important flexibility in retirement planning, taking penalties off the table when plans and jobs may be in more flux.

Age 59½: Penalty-Free IRA & 401(k) Withdrawals

More withdrawal penalties come off the table when you turn 59½ because, now, you can start pulling funds out of your IRAs and other 401(k)s without incurring the 10% early withdrawal penalty.⁴

Although these withdrawals can still be taxed as income, removing the withdrawal penalties can open up more financial resources at a time when you may be:

• Considering scaling back work-wise, possibly with fewer hours or part-time status.
• Roughly 3 to 5 years off from full retirement (please note that the average retirement age for men is 65; it’s 63 for women).⁵
• Ready to increase your retirement income if you’re already retired.

Age 62: Eligibility for Social Security Benefits

At 62, you can start collecting Social Security benefits, opening up another avenue for retirement income. There is a tradeoff here, however.

If you start collecting Social Security at 62:

• You’ll be doing so before “full retirement age” (FRA), which is 67 for anyone born in 1960 or after.⁶
• Your benefits will be reduced by 30%.
• If you have a spouse, you’re partner’s benefits will drop by 35%.⁶

So, let’s say you start to collect Social Security benefits in 2024. If you are:

• 62, you’d get $2,710/mo.⁷
• 67 (your FRA), you’d collect $3,822/mo.⁷
• 70, you’d see $4,873/mo.⁷

Depending on your retirement income and your needs, there can be pros and cons to taking your Social Security benefits at 62, waiting until you reach your FRA, or waiting longer.

Age 65: Medicare Enrollment

At 65, you’re eligible for Medicare. That can help you start to reduce your healthcare costs if you know how to navigate the ins and outs of this complex system — and if you enroll during the “Initial Enrollment Period” (IEP).⁸

Your IEP is a 7-month timeframe that starts 3 months before you turn 65, ending 3 months after the month you turn 65.⁸ If you miss your IEP:

• You can face financial penalties, which increase the longer you wait.⁸
• You may have to pay a penalty known as the “Premium-Part A.”⁸
• You may have to wait and sign up for Part B coverage, paying a monthly late enrollment penalty for as long as you have this coverage.

Age 66 to 67: FRA for Social Security

Your FRA is between 66 and 67, depending on when you were born.⁶ If you wait to claim Social Security benefits until your FRA, you can receive full benefits, without any reductions.⁷

Keep in mind that these benefits max out when you hit 70.⁷ While it can make sense to wait until FRA or 70 to start collecting your Social Security benefits, that may not be the best strategy for everyone’s retirement.

Age 73: Required Minimum Distributions (RMDs) from Retirement Accounts

By 73, you’ll need to start taking required minimum distributions (RMDs) from certain retirement accounts. That’s required by current U.S. tax laws, with the RMD varying based on:

• Your account balance as of December 31st of the previous year: RMDs apply to traditional IRAs, 401(k)s, 403(b)s, and most other tax-deferred retirement accounts.⁹
• Your life expectancy: This is determined by IRS life expectancy tables.$^9$ The older you get, the more your RMD will increase. As that happens, new risks of moving into higher tax brackets can arise.⁹

RMDs were designed to ensure retirement account withdrawals and, in turn, taxable income for the U.S. government. That’s why there can be hefty penalties for not taking RMDs.⁹

In fact, if you fail to take your RMD for a particular year (i.e., by December 31st of a given year), you could face a penalty of up to 50% of the amount you were supposed to withdraw but didn’t.⁹   Like Social Security benefits, RMDs can be complex. If you don’t plan for them properly, they can interfere with your retirement income plans and your tax mitigation strategies.

The above milestones may not be the only ones to plan for and keep track of along the next phase of your journey, and it doesn’t mean there won’t be challenges or some bitter pills to swallow, both literally and figuratively! Oh, and one more simple rule about turning 50: clear a path between your bed and your bathroom before going to sleep…it’s just common sense! 

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. 

Sources:

1. https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000
2. https://www.tsp.gov/bulletins/24-2/
3. https://www.irs.gov/taxtopics/tc558
4. https://www.irs.gov/retirement-plans/plan-participant-employee/when-can-a-retirement-plan-distribute-benefits
5. https://www.cnn.com/cnn-underscored/money/retirement-age
6. https://www.ssa.gov/benefits/retirement/planner/agereduction.html
7. https://faq.ssa.gov/en-US/Topic/article/KA-01897#:~:text=The maximum benefit depends on,maximum benefit would be %244%2C873.
8. https://www.medicare.gov/basics/get-started-with-medicare/sign-up/when-does-medicare-coverage-start
9. https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs
10. https://www.irs.gov/retirement-plans/traditional-and-roth-iras