There are few thrills in life that can compare with turning 16 and getting your driver’s license. It’s often the first true sense of independence and freedom that many experience. For me, cruising down the road, windows rolled down, parentless, in a 1992 Pontiac Grand Am was truly unforgettable.
Before I could even figure out how to afford the gas, however, I was rounding my 18th birthday. The excitement of being an adult was quickly replaced with the stress of actually being one.
I may not remember it as vividly, but I think 21 was an important milestone too. And then like a teenager’s gas tank, fun birthdays dry up. Lost somewhere in the middle of a career, marriage, buying a home, raising children, saving for the future or enjoying retirement, you may also be wondering what happened to all those thrilling birthdays? What else is there to look forward to? Well fear not, it is our privilege to share an exhaustive list of enduring financial milestones.
25: Generally once you turn 25, auto insurance rates drop substantially. Most insurance agents now consider you a more mature and safe driver – ha!
26: Don’t spend those car insurance savings just yet – you are about to be vacated from your parent’s health insurance. Make sure to double-check the plan’s fine print. Some states and plans have different rules. For instance, if you are on a marketplace plan, you can remain covered through December 31st of the year you turn 26.
35: Unfortunately, there are not many financial milestone birthdays between 26 and 50. Turning 35 and finally being eligible to run for President of the United States is worth mentioning in an otherwise bland decade.
50: Time to catch-up! Individuals who are 50 and older can contribute an extra $6,500 to their employer sponsored retirement plan each year. Workers can also contribute an extra $1,000 to an IRA or a Roth IRA. While some studies may reveal happiness bottoms at 50, nothing like more savings opportunities to flip that frown into a smile!
55: For individuals who are covered by a high-deductible healthcare plan (HDHP), you are able to contribute an extra $1,000 per year to your Health Savings Account. An under-utilized advantage exists if both spouses are covered by an HDHP. Each spouse can make separate $1,000 catch-up contributions beginning at 55. This means a total family contribution of $9,200 in 2021 for a married couple over the age of 55 to this triple tax advantaged savings vehicle.
Turning 55 certainly has its financial advantages. Typically, individuals would have to pay a 10% federal penalty, along with income taxes, when they withdraw money from a retirement plan before 59½. This penalty disappears for 401(k) and 403(b) withdrawals on your 55th birthday as long as you have been “terminated” from service (quit, retired, or fired).
59½: This is absolutely one of the most under-celebrated milestones. At 59½, anyone can take distributions from an employer sponsored retirement plan or IRA without incurring a 10% penalty. Your valuable savings are finally available penalty-free. Fortunate workers will also be allowed to pursue an “in-service” rollover if their retirement plans allow. This enables employees to move money into an IRA while still working and contributing to a 401(k).
60: If you are a widow or widower of a person who worked long enough to earn social security, you may be eligible to begin receiving a social security survivor benefit when you turn 60. If you qualify for social security benefits on your own record, you can switch to your benefit in future years.
62: This is the earliest age you can receive your own social security retirement benefit. Fair warning: on claiming before full retirement age (typically ages 66-67), your benefit will be permanently reduced and you will only receive about 70% of your lifetime entitlement.
65: A birthday that you will likely celebrate while waiting in line at the Social Security office. At 65, most Americans are eligible for Medicare benefits. You will typically want to begin this process at least three months before your birthday and no later than three months after. Delaying past that point can cause you to pay permanently higher premiums.
After your 65th birthday, your Health Savings Account effectively functions like an IRA. There is no longer a penalty for non-healthcare related expenses after your 65th birthday. You now have access to these funds to use as you wish, but you will still owe income taxes on any non-healthcare related expenses.
66: This is full retirement age for those lucky enough to be born between 1943 and 1954. Waiting to begin your social security distributions until at least this birthday means you are not leaving anything on the table. Full retirement age ensures you will receive 100% of your social security benefit.
67: If you were born in 1960 or later, this is your full retirement age. You are now able to receive 100% of your social security benefit and will not be penalized for claiming early.
70: The presents only get sweeter at 70! Those with the fortitude and capacity to delay receiving social security until their 70th birthday are rewarded with an 8% annual increase. Start cashing those checks immediately at 70, there is no benefit to delay further.
70½: Another significant half birthday to celebrate. The IRS requires retirees to take required minimum distributions (RMDs) each year from their retirement accounts. Unfortunately, this means a retiree will have to start paying income taxes on their distributions. A qualified charitable distribution (QCD) is a method that can help lower income taxes while also benefiting charities. A QCD is a direct transfer from an IRA to a qualified charity. A QCD will count toward your current year RMD, effectively reducing your taxable distribution. A lower RMD means reduced income which will ultimately lead to a lower tax bill. Perhaps a tax policy quirk, but you can now begin to take QCDs at 70½, before your RMDs begin at 72.
72: After decades of postponing taxes, the government finally demands its cut. You are required to start required minimum distributions from most retirement plans beginning the year you turn 72. This is one party you will not want to miss – the penalty for forgetting a required minimum distribution can be as high as 50%!
There are many significant and special birthdays after 72. On behalf of the entire team at Greenleaf Trust, we encourage you to enjoy each and every one of them. For anyone seeking help through these financial milestones, our team is standing by and waiting to celebrate with you.