Most children stop being “and-a-half” somewhere around age 12. Kids add “and-a-half” to make sure everyone knows they’re closer to the next age than the last.
When you are older, “and-a-half” birthdays start making a comeback. In fact, starting at age 50, several birthdays and “half-birthdays” are critical to understand because they have implications regarding your retirement income.
Age 59 ½
At age 59 ½, workers are able to start making withdrawals from qualified retirement plans without incurring a 10 percent federal income-tax penalty. This applies to workers who have contributed to IRAs and employer-sponsored plans, such as 401(k), 403(b), and 457 plans. Keep in mind that distributions from traditional IRAs, 401(k) plans, and other employer-sponsored retirement plans are taxed as ordinary income.
At age 62 workers are first able to draw Social Security retirement benefits. However, if a person continues to work, those benefits will be reduced. The Social Security Administration will deduct $1 in benefits for every $2 an individual earns above an annual limit. In 2014, the income limit is $15,480 (up from $15,120 in 2013).
At age 65, individuals can qualify for Medicare. The Social Security Administration recommends applying three months before reaching age 65. It’s important to note that if you are already receiving Social Security benefits, you will automatically be enrolled in Medicare Part A (hospitalization) and Part B (medical insurance) without an additional application.
Age 65 to 67
Between ages 65 and 67, individuals become eligible to receive 100 percent of their Social Security benefit. The age varies, depending on birth year. Individuals born in 1955, for example, become eligible to receive 100 percent of their benefits when they reach age 66 years and 2 months. Those born in 1960 or later need to reach age 67 before they’ll become eligible to receive full benefits.
Age 70 ½
At age 70 ½, participants must begin taking required minimum distributions (RMDs) from traditional IRAs and qualified retirement plans, such as 401(k), 403(b), and 457 plans. RMDs are based on your account balance and life expectancy.
Understanding key birthdays may help you better prepare for certain retirement income and benefits. But perhaps more importantly, knowing key birthdays can help you avoid penalties that may be imposed if you miss the date.