“Baby boomers”, those born between 1946 and 1964, comprise the largest population boost in American history. As this well-known generation continues to retire and age, they currently comprise about one-fifth of the total U.S. population, equating to roughly 71 million people.1 Approximately 10,000 of them will continue to turn 65 every day for the remainder of this decade. While baby boomers may have many important dates from their past that stick out in their minds — the JFK and MLK assassinations, the Apollo 11 moon landing, the Cuban Missile Crisis and the Watergate Scandal, just to name a few — there are other important dates in the present and near future associated with their retirement that are also important for them to remember.
These dates have financial significance not only for baby boomers, but also for the generations that follow as they plan for and live in retirement. Missing these dates may have a detrimental impact on individuals’ financial well-being in retirement. However, understanding the relevance of these dates and the savings options associated with them can help increase baby boomers’ after-tax income and financial security in retirement.
In order as the dates occur:
Age 50 — Catch-up contributions
Many retirement plans – i.e. 401(k), 403(b) and governmental 457(b) – allow participants who are age 50 or older to make additional salary deferral contributions to the retirement plan known as a “catch-up contribution.” For 2023, the catch-up contribution limit is $7,500.2 Traditional and Roth IRAs can also permit a catch-up contribution of $7,500 for 2023.3
Age 55 — Possible withdrawals from a participant’s retirement plan without additional tax for early distributions
Generally, any withdrawal prior to age 59½ results in an additional 10% early withdrawal tax on top of the regular income tax applicable to retirement plan distributions. However, depending on the provisions of the applicable retirement plan, participants who are age 55 or older and separate from service may be able to take a distribution from their 401(k), 403(b), or 457(b) governmental plan without paying the additional 10% tax for early withdrawal.4 Such a distribution after age 55 will be taxable to the participant as regular income, but no additional tax will apply. It is important to note that this exception to the additional 10% early withdrawal tax applies only to 401(k), 403(b), or 457(b) governmental plans, not to an IRA account. So remember, if a participant elects to roll over his or her retirement plan account into an IRA, this benefit will be lost and the participant must wait until age 59½ to take a distribution in order to avoid the additional 10% early withdrawal tax.
Age 59½ — Withdrawals from all retirement accounts without additional 10% tax for early withdrawals
Once an individual reaches age 59½, they can take withdrawals from any retirement account (e.g., IRA, 401(k), 403(b), SEP IRA or SIMPLE IRA) without the additional 10% tax for early withdrawal. Remember, though, that the withdrawals will generally be subject to ordinary income tax. However, withdrawals from a Roth account after age 59½ will not be subject to the additional 10% tax for early withdrawals and will also not be subject to income tax if the participant has complied with the Roth 5-year rule and all other Roth requirements.5 (The Roth 5-year rule basically requires that an individual hold his or her Roth account for at least 5 years before accessing any of its funds in order to avoid the additional 10% tax.)
Age 62 — Early Social Security benefits
Age 62 is the earliest age that an individual can collect non-disability Social Security monthly payments. Note, however, that anyone currently electing to receive Social Security benefits will receive a benefit reduced by 25% to 30%, depending on the number of months between the election to receive early benefits and the age at which the individual would be entitled to receive full benefits.6 Taxation of Social Security benefits depends on the amount of benefits received and other income of the individual, if any. The Social Security Administration website provides a calculator to determine the amount of monthly payments, as well as additional taxation that may be applied. The age at which an individual should apply for Social Security benefits is a complex decision dependent on many factors. If possible, individuals should consult with a financial advisor or other professional to determine the most advantageous age at which to collect benefits.
Age 65 — Medicare eligible
Individuals will be automatically enrolled in Medicare parts A and B if they are already collecting Social Security benefits when they turn 65. If the individual has not yet started collecting Social Security, they will need to apply for Medicare directly. To ensure that benefits begin in a timely manner, it is generally suggested that such individuals apply for Medicare benefits 3 months prior to the individual’s 65th birthday. They may do so at a local Social Security office, online or by calling 1-800-772-1213. If individuals fail to sign up for Medicare within their 7-month initial enrollment period (an individual's actual birthday month plus the 3 full months before and after that individual's birthday month), they may be subject to a late enrollment penalty that increases the cost of Medicare part B premiums.
Age 66 or 67 — Full Social Security retirement age
The Social Security Administration has increased the age at which an individual is entitled to receive full Social Security benefits from age 65 (for those born in 1937 or earlier) to age 67 (for those born in 1960 or later). The following chart shows the gradual increase in the full retirement age based on the individual’s year of birth.
|Year of birth
|Full (normal) retirement age
|66 and 2 months
|66 and 4 months
|66 and 6 months
|66 and 8 months
|66 and 10 months
|1960 and later
Age 70 — No additional increases in Social Security benefits
While full Social Security benefits are payable at age 66 or 67, depending on an individual’s year of birth, applicants are not required to begin collecting benefits at that time. Instead, such individuals may delay receiving Social Security benefits for one or more months until age 70. This delay will result in an increased monthly benefit of 8% for each full year of delay. Note, however, that the individual will no longer receive additional increases beyond age 70. Therefore, there is no reason to delay taking benefits after age 70.
Age 72 — Potential start of required minimum distributions (RMDs)7
The RMD rules apply to all employer-sponsored retirement plans, including profit sharing plans, 401(k) plans, 403(b) plans and 457(b) governmental plans. The RMD rules also apply to traditional IRAs and IRA-based plans such as SEPs, SARSEPs and SIMPLE IRAs. However, note that although the RMD rules apply to Roth 401(k) accounts in employer-sponsored retirement plans, they do not apply to Roth IRAs while the owner is alive. The RMD rules generally require that minimum distributions must begin to be distributed to the participant (or beneficiary, as applicable) no later than April 1 of the year following the year in which the participant turns 72, or retires, if later (unless the individual is a 5% or greater owner of the business for non-IRA-based plans). Remember that the second RMD must be taken by December 31 of that same year. Thereafter, the RMDs should be distributed annually by the end of each year.
Keeping these dates in mind will assist baby boomers (and the Gen Xers that follow) in making financial and retirement contribution and distribution decisions based on the best options available to the individual, considering their personal situation and financial needs.