The Most Important Ages of Retirement

The retirement clock doesn't start the day you stop working. It's better to think of this period of your life as a range of important dates and milestones spread across several decades, some of which arrive while you're still earning a paycheck. In short: It's a process.

Why? The reality is contribution limits for your retirement accounts change as you age and tax penalties for certain kinds of withdrawals disappear. Similarly, you become eligible for different programs at different ages and at a certain point you'll be required to start taking a minimum amount from most of your retirement accounts each year.

Not all milestones require that you do something. But it's still important to know about them. Here are the key ones, along with some suggestions about moves you could make.

In 2024, most workers can contribute up to $23,000 to a 401(k), while workers aged 50 and older can contribute an additional $7,500, for a total of $30,500. If you have a traditional or Roth IRA, you can contribute an additional $1,000.

Starting this year, catch-up contribution limits will be indexed to inflation.

Then, starting in 2025, workers aged 60 through 63 will be allowed to make even larger catch-up contributions. For qualified plans, such as a 401(k) and 403(b), the additional limit will be 150% of whatever the regular catch-up amount is for a given year, or $10,000—whichever is greater.

For example, if this provision were effective today, a 62-year-old could contribute $23,000 to a 401(k), plus 150% of the regular $7,500 catch-up contribution, or $11,250 ($7,500 X 1.5%)—for a total of $34,250.

Starting in 2026, another provision starts: If you make more than $145,000, all your catch-up contributions will need to be made to a Roth account, using after-tax dollars.

Review any work-related benefits for retirees to understand what will be available to you in retirement, and what may need to be replaced. Also review your company's stock-vesting provisions upon retirement as well as pension choices, if available.

In 2024, the HSA contribution limits are $4,150 for self-only coverage and $8,300 for family coverage. If you're 55 or older, you can make an extra catch-contribution of $1,000. Any extra you can put in can help pay for additional medical needs or save more toward health expenses in retirement.

If you leave your job during or after the year you turn 55, you can withdraw money directly from a qualified employer-sponsored retirement plan, such as a 401(k) or 403(b), without penalty. (If you're a qualified public safety employee such as a law enforcement officer, private or public sector firefighter, or air traffic controller, it's age 50.)

If you're considering early retirement, one possible strategy would be to roll over an IRA or any old 401(k) funds into your employer plan to get access to the funds early, without penalty.

If you have significant tax-deferred savings, you may want to consider drawing them down (in combination with your taxable accounts) as early as possible. This can help you avoid a potential spike in income once your required minimum distributions (RMDs) start at age 73 (more on those below).

Why would this be a problem? It's possible that RMDs could push you into a higher tax bracket once they kick in, especially after accounting for Social Security, pensions, and other income.

Keep in mind, though: Being able to begin withdrawals from qualified retirement accounts without penalty doesn't necessarily mean you should. Work with an advisor to create a personalized retirement and income plan.

With an advisor, discuss Social Security strategies, including those with surviving spouse benefits.

You can start taking benefits as early as age 62, wait until you've reached your full retirement age, or hold out to age 70. The closer you get to age 70, the larger your benefit. While there's no "correct" claiming age for everybody, the rule of thumb is that if you can afford to wait, delaying Social Security can pay off over a long retirement.

That said, if you need the income right away or your income strategy depends on early withdrawals, then you should consider starting sooner.

Medicare has specific enrollment periods, and if you miss them you could be hit with late-enrollment penalties. However, you may be able to enroll after age 65 without penalties if you continue to work past age 65 and keep your employer coverage. Pay close attention to Medicare enrollment periods if you have retiree health insurance from a former employer or are under COBRA. These types of coverage do not allow you to defer enrollment past age 65 without penalties and may leave gaps in your coverage. It's important to get this right, so if you're in doubt, get help from HR or contact Medicare.

Also note that once you are enrolled in Medicare, you're not permitted to make contributions to a HSA. If you enroll in Medicare after reaching age 65, Medicare will backdate your enrollment by six months (but no earlier than age 65). To avoid an IRS penalty, make sure you stop contributions to the HSA in time.

Although you should use your HSA to cover medical expenses, you could use the funds as an additional source of income in retirement. If you use HSA funds for non-medical expenses after age 65, you'll pay only ordinary income tax—a tax hit no worse than you would expect from an IRA withdrawal. Be aware, however, that using funds on non-medical expenses before age 65 would leave you paying both ordinary income tax and a 20% penalty. If you're not yet retired, speak with a financial planner or tax advisor before making a move.

With an advisor, review strategies for taking Social Security now or waiting for delayed retirement credits (8% per year) up until age 70.

Your benefits stop increasing at age 70, so don't delay starting them.

In 2024, you can give up to $105,000 (indexed for inflation) directly from your IRA to a qualified tax-deductible charity. QCDs can be an effective way to give to charity as well as reduce your tax bill, since they are excludable from taxable income. Once you reach the age when RMDs kick in, a QCD can be used to satisfy all or a portion of the RMD.

In general, once you reach age 73, you must begin taking annual RMDs from all tax-deferred retirement accounts, such as 401(k)s, 403(b)s, traditional IRAs, SEP IRAs, and SIMPLE IRAs.

You may choose to delay your first RMD until April 1 of the year following your 73rd birthday. However, delaying your first distribution would oblige you to take both your first and second RMDs in the same tax year, which could significantly increase your taxable income.

The IRS calculates RMDs by taking the sum total of all your tax-deferred retirement accounts at the end of each year and dividing it by a number based on life expectancy and other factors. The denominator gets smaller and smaller as your age increases, meaning your distributions get larger and larger.

If you miss a deadline or don't withdraw your full RMD, you will have to pay a penalty of 25% of the amount you failed to withdraw.¹ For example, if your RMD was $100,000 but you withdrew only $50,000, you'd owe a quarter of the shortfall ($12,500) as a penalty. That said, if you correct an RMD mistake in a timely fashion, the penalty may be reduced to 10%.