Perks to Getting Older: Important Age-Based Financial Planning Milestones to Remember

Your financial life has many stages. From your first job to your first day of retirement, your financial habits can determine how quickly you move between your personal milestones. In addition to your own timeline, the government directly affects how your financial toolbox changes when you reach a certain age. Keeping these ages in mind can make a world of difference in your wealth-building and financial future.

As financial advisors in Atlanta, we understand what can happen when these age-based milestones are overlooked. You certainly do not want to miss out on opportunities granted at certain ages, and just as well, you desire to avoid penalties for missing an important step.

As we start a new year, the Linscomb & Williams Wealth Management Team in Atlanta offers this quick refresher.


Are you ready for 2021? Contact Linscomb & Williams to see how we can help you prepare for the new year.


Age 50: Catch-Up Contributions

One of the most straightforward boosts to your retirement savings becomes available in the year of your 50th birthday. Once you reach this threshold, you can instantly contribute more money into your retirement accounts. This means you can potentially take a bigger tax deduction by increasing investments into your pre-tax retirement accounts, such as a Traditional IRA, 401(k), or Roth IRA.

If you’re not yet 50 years of age, the contribution limit for a Traditional IRA or Roth IRA is $6,000 per year. Upon reaching age 50, you can add an extra $1,000 per year. The contribution limit is even higher for self-employed or employee-sponsored retirement accounts. Once you turn 50 years old, you can add an additional $6,500 annually into your 401(k), 403(b), or other employer-sponsored plans annually.

As the name suggests, these catch-up contributions are a great opportunity for you to regain lost ground in your retirement savings. If you started saving for retirement late in your career or were otherwise unable when younger to save as much as you wished in your retirement accounts, making catch-up contributions can be the key to boosting your retirement savings. It can make 50 feel like "the new 40."

The Rule of (Age) 55

There are further financial benefits at your disposal in your 50s – who says getting older doesn’t have its perks? On top of the added benefit of catch-up retirement contributions, you can also make withdrawals from your employer-sponsored plans with fewer tax penalties if you retire early, or are laid-off from your job.

Normally, when making a withdrawal from a 401(k), 403(b) or other retirement plan, federal income taxes are due. But on top of income tax, a 10 percent tax penalty is due for early withdrawal (i.e. – before age 59-½). But individuals over 55 are exempt from the 10 percent penalty.

Keep in mind that taking an early withdrawal should be viewed as a last-resort strategy. It’s not advisable to take money from your retirement plan (without completing a rollover), because it can leak your retirement savings and prolong your working years. (Read our recent blog post: What Cashing Out Your Retirement Plan Really Means: Atlanta Financial Planner Explains.)

Also, the Rule of 55 only applies to employer-sponsored plans like a 401(k) – not IRAs. You’ll have to wait until you turn 59-½ to make withdrawals from an IRA without penalty. Be sure to consult with your financial advisor before making a withdrawal from your retirement accounts of any type.

Age 62 and 67: Important for Social Security

In our 50 years of helping families plan their retirement income, we see repeatedly that Social Security is usually an important pillar of support during your retirement. But the age that you elect to begin receiving these benefits will greatly determine how much you’ll receive each month. Typically, Social Security recipients receive $1,500 per month, on average, but amounts can vary. The longer you wait to start your benefit, the more you will receive.

62: When You First Become Eligible for Social Security

You are eligible to begin receiving Social Security benefits once you turn 62. Age 62, however, is considered an "early" start and your monthly check amount will be reduced. Delaying the start of your Social Security benefits can increase how much you receive significantly. Roughly, your benefits can be reduced by 25 to 30 percent, if you begin receiving benefits immediately once you’re eligible, costing you considerably in terms of monthly cashflow. Depending upon how long you live, starting early can cost you tens of thousands of dollars in the long run. We don't know how long we'll live, so that part is guesswork. What is not guesswork is this: You can receive significantly more in monthly benefits, if you wait until you’re near or have reached your full retirement age.

67: Full Retirement Age

If you've not yet attained the age of 67, your full retirement age is likely between 66 and 67, depending on your year of birth. The five-year difference between when you first become eligible for Social Security benefits and your full retirement age can make a big difference and carry pros and cons.

As a financial advisor in Atlanta, I am asked often about Social Security – will it be there for me, how much will I receive, how do I start receiving benefits, etc. While it’s easy to find general rules of thumb online, I encourage you to talk to a fiduciary financial advisor (who has no conflict of interest in giving you advice) to see what age makes sense for you.

Age 72: When Required Minimum Distributions (RMDs) Begin

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 raised the age when you must begin taking RMDs from a Traditional 401(k) or IRA, from 70-½ to 72. The government requires you to begin taking money out at this age because they want to begin collecting the income taxes that have been deferred during all the years you were saving. So, at age 72, whether you need the funds or not, you must begin withdrawing at least the RMD amount or face severe tax penalties. Before the SECURE Act, it was also true that you had to discontinue making contributions to your Traditional IRA or 401(k), even if still working. That has now changed and if you otherwise qualify, you can continue adding to IRAs and 401(k) accounts after age 72.

RMDs are calculated on the first day of every calendar year, and are based on your account balance on the last day of the previous year. Money withdrawn as an RMD is typically taxable. This may not be an issue if your tax bracket is considerably low. If not, or if this money will bump you into a higher tax bracket, talk to your financial advisor about donating your RMD to an eligible charity in the form of a Qualified Charitable Distribution (QCD), a special IRS exemption that can help you avoid taxes. We find that many of our retired clients who no longer claim itemized deductions on their income tax return find this QCD strategy particularly advantageous as a way to save income taxes, and in certain cases, reduce their Medicare premiums. 

Lifespan Averages to Keep in Mind

While no one has a crystal ball, it’s wise to look at your family and common lifespan averages for guidance when planning for retirement.

On average, women live to age 81; whereas, men live to age 76. But remember, those are averages for a newborn baby. By the time you reach your early 60s, the lifespan average for those still alive has increased by about three to four years. When planning your retirement, try to remember that you are looking to support yourself for 10 to 25 (or more!) years, depending on your longevity. Having an age in mind can help you with decisions you will have to make at the milestones mentioned above.

There are also financial planning strategies that can protect you on either end of your lifespan. For some, passing away early can leave surviving family members at risk, which makes estate plans and life insurance policies for heirs and your spouse invaluable. For those who might survive to a life expectancy much longer than the average, outliving your assets is also a major risk.

Putting It All Together

Getting older isn’t all bad news. As the saying goes, "Age is just a number." There’s retirement, possible grandchildren and, as you can see, special financial benefits that become available to you.

Discuss your situation with an experienced fiduciary financial advisor so you don’t miss these tools available for your financial planning. If you’re currently in search of a financial advisor in Atlanta or feel it’s time for a change, contact the Linscomb & Williams Wealth Management Team in Atlanta to see how we can help. Linscomb & Williams is a fee-only, fiduciary financial planning and investment management firm with nearly half a century of experience helping families build, preserve and manage wealth.

Get the conversation started. Like a fine wine, your wealth will only get better with time.


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MaryJane M. LeCroy, CFP®

MaryJane M. LeCroy, CFP®

As a member of our Atlanta team, MaryJane M. LeCroy is a Managing Director and Senior Wealth Advisor for Linscomb & Williams.

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Investment Advisory Services are offered by Linscomb & Williams, an SEC registered investment adviser, and a subsidiary of Cadence Bank. Linscomb & Williams (L&W) provides financial planning, investment management, and retirement plan and investment consulting services. L&W is not an accounting firm, and does not provide tax, legal or accounting advice.

Information expressed herein is based upon opinions and views of L&W and information obtained from third-party sources that Linscomb & Williams believes to be reliable, but Linscomb & Williams makes no representation or warranty with respect to the accuracy or completeness of such information. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.