Turn Over A New Financial Leaf And Start 2021 Off Right!
By Ann Blakey, CFP®
Even with all the challenges we face in 2021, there’s always something hopeful and exciting about a new year. Of course, we will all be turning another year older at some point this year – but if you don’t like the thought of adding a number to your age, here’s the good news: there are some financial advantages to reaching certain milestone birthdays.
Here’s how you can maximize your finances if you are turning one of these ages during 2021.
Congratulations, you’ve been alive for half a century! Having reached the prime of your accumulation years, you now have a leg-up on younger colleagues since you have reached the “catch-up years.” When you turn 50, you can start contributing an additional $6,500 per year to your 401(k) and an extra $1,000 to your IRAs. This boost can increase your Net Worth in a tax-advantaged manner and help you make real progress toward your retirement goals.
Few people consider half birthdays monumental, but this one should be on your calendar. Fifty-nine and a half is the magic age when you can start taking money out of your tax-advantaged retirement accounts without penalty. That doesn’t mean it’s time to drain your accounts, but it does give you more options should you need the money sooner rather than later.
One important milestone as you approach retirement is the day you turn 62. At that age, you become eligible to receive Social Security benefits for the first time. Before you apply to receive Social Security, however, it’s important to review your options so that you can plan to maximize your lifetime benefit. If you claim at 62, your basic benefit is reduced a fraction of a percent for each month you begin receiving benefits prior to your full retirement age. Triggering your Social Security early can permanently reduce your benefit by up to 30%.
Medicare is calling! At this age, you will need to make important decisions regarding Medicare so that you don’t face fines or penalties later. Whether you plan to retire at 65 or keep working, you’ll need to sign up for Medicare and begin taking advantage of the benefits available to you. Typically, the best time to apply for Medicare is three months before you actually turn 65.
The closer you get to retiring, the faster these milestone birthdays come! If you are turning 66 (and 2 months) in 2021, you are eligible to receive your full Social Security benefit without reduction if that is the claiming option that you have decided upon.
If you’ve held off on claiming Social Security up to this point, now’s the time to do it. Waiting past your full retirement age increases your benefit by 8% for each year that you delay, with a maximum possible increase of 32%. You cannot delay and increase your benefit indefinitely, though. Once you reach age 70, the amount of benefits you receive will not increase any further.
Regardless of whether you need the money or not, the mandatory withdrawal age for your tax-deferred retirement accounts is 72. Failure to withdraw the proper amount will subject your distributions to a 50% penalty tax, so it’s important to make sure you take your required distributions by the end of the year. In 2020, the CARES Act waived required minimum distributions (RMDs), but that provision is set to expire on December 31st, 2020. So prepare to start taking your RMDs if you are turning 72 in 2021.
This is just a brief fly-over of things to have on your radar as you approach these ages. If you are getting closer to retirement, you may want to start researching your options and making plans to maximize the benefits and advantages available to you. Our team at Washington Wealth Advisors would love to walk you through the details and help you make the best possible decisions for your future. Call our office at 703.584.2700, email firstname.lastname@example.org or schedule some time with us.
ABOUT WASHINGTON WEALTH ADVISORS
Washington Wealth Advisors is a fee-only registered investment advisory firm serving busy families, executives, women building wealth, and small business owners. We provide Wealth Advisory Services—financial planning coupled with asset management—guided by a personalized investment strategy based on each client’s unique goals. Our unbiased advice, independent approach, and proactive investment management help to support our clients’ overall financial peace of mind.