At Heritage Financial Services it’s not “one size fits all planning”. What makes sense for you depends on a lot of things, including your specific age. Details matter and we send pointed reminders to our clients about strategies that make sense based on their age. We’ve gathered a few actionable age-dependent retirement planning strategies to consider for yourself or to discuss with a loved one.
50’s – Catch Up Contributions
Individuals who are age 50 or older by the end of the year may be able to make catch-up contributions to employer sponsored retirement plans and IRAs. These additional contributions can help build savings for the future and provide tax benefits.
For most employees, the contribution limit to 401(k), 403(b) and 457 plans is $22,500 from salary-deferral in 2023. The catch-up provision allows another $7,500 for those 50 or older, for a total contribution of $30,000. Even if you have previously elected the maximum allowable contribution with your employer, you may wish to verify how being age 50 or over impacts your payroll withholdings. You may need to take proactive measures to ensure you enjoy the benefits of the catch-up amount this year.
The IRA and Roth IRA contribution limit for 2023 is $6,500; with an additional catch-up contribution limit of $1,000 for those age 50 or older. Eligibility for deductible IRA and Roth IRA contributions are dependent on adjusted gross income (AGI), with participation phased out for many households. It is best to discuss your IRA strategy with your advisors, there may be opportunities to add to Roth balances even if your AGI is over the limit for direct contributions.
60’s – Claim Early or Delay
Attaining age 62 is a pivotal moment in retirement planning, as it is the age when most Social Security beneficiaries are first able to commence payments. Payments that start at age 62 are considered early, because they are before full retirement age. Full retirement age is 67 for those born in 1960 and later. When filing early, you will receive more payments over your lifetime, but the amount you receive is permanently reduced. Your age 62 payment is approximately 70% of the payment available at full retirement age.
Conversely, if you wait until after your full retirement age to collect payments, you will collect fewer payments but will receive a permanent raise. Delayed retirement credits provide an 8% increase in your payments for each year of late filing, up to age 70. Your age 70 payment could be 124% of your age 67 payment.
How can you get the highest lifetime benefit?
We address this question, and others related to benefits, by collecting information and using scenario analysis software to compare options. In some instances, timing choice has little economic impact and the decision is largely personal preference. In other cases, the timing decision could amount to over six figures throughout retirement. We help our clients sort through the many factors that are part of the social security timing decision, such as marital status, life expectancy, income taxes, and cash flow needs.
70’s – RMD
Recently enacted legislation pushed back the age at which required minimum distributions (RMDs) from most retirement accounts must begin. For individuals who turn 72 in 2023, RMDs are delayed by 1 year and will begin at age 73. And starting in 2033, RMDs may begin at age 75. If you have already turned 72, you must continue taking distributions.
This change may be welcome news, as it provides additional planning flexibility. For example, if 2023 represents a low-income year, a partial IRA withdrawal or IRA to Roth conversion may be a tax-efficient strategy to consider.
These are just a few of the strategies to consider as you near or enter retirement. What is best for you depends on your income tax situation, cash flow needs, and overall goals. Your wealth management team can help you determine the optimal approach.
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