Remember as a kid how excited you were for your birthday to come?  It couldn’t arrive fast enough!  Presents, cake and everyone making a big deal of you was great! 

You probably couldn’t wait to turn 13 and finally become a teenager.  Then maybe you looked forward to 16 so you could get your license.  18 to vote.  At 21 you could legally drink and 25 got you a discount on your auto insurance. 

After that, you may have spent the rest of your time wishing you were 25 again.

It’s in our nature to look forward to milestones.  After all, they are a rite of passage and a big achievement.

Did you know you’ve got some retirement milestones to look forward to?

Being unaware of these milestones will cost you money!

Milestone #1 – Age 50

In 2002, the government changed the rules on contributions to retirement plans and IRA’s.  They allowed a “catch-up” provision for older individuals.  If you are age 50 or older, you may now contribute an extra $1,000 to your IRA’s and an additional $5,500 to your 401k’s in 2009. 

This is a great deal for those looking to sock some extra cash away for retirement!

Milestone #2 – Age 55

Age 55 is a big deal for those looking to retire early for the simple fact that if you retire or separate from service the year you turn 55 or after, you are allowed to take 401k distributions without getting whacked with a 10% penalty! 

Let me say that again…NO PENALTY for early retirement distributions.  This is known as the “Age 55 Exception”. 

Get this – if you roll your money to an IRA, the deal is off the table.  That’s right, you must leave it in the 401k, but you are allowed to take out as much as you want, whenever you want.

Milestone #3 – Age 59 1/2

I doubt most of you celebrate Half Birthdays, but this is one you’ll want to throw a party for!

This is the traditional age in which you can withdraw your retirement money without fear of Uncle Sam hitting you over the head with a 10% penalty for pre-mature distributions.

Milestone #4 – Age 62

62 is a big age as well for the simply because you can now qualify for Social Security benefits.  It doesn’t mean you have to take them or even that you should take them, but you at least have the option available to you.  Don’t forget it will be a reduced benefit, but a benefit nonetheless.

Milestone #5 – Age 65

At this age you are now qualified to take Medicare, which is social insurance including two main parts.  Part A covers hopsitalization and Part B acts as your medical insurance. 

If at this point you are not receiving Social Security benefits then you need to apply for Medicare and will want to do that three months before you turn 65.

Milestone #6 – Age 66-67

If you were born between 1943 and 1954 then your full retirement age (FRA), or the age in which you can collect 100% of your entitled Social Security benefits is age 66. 

For those born in 1955 you have to wait an additional two months.  The government adds two more months to the waiting period for each year until 1960 (i.e. if you were born in 1958, your FRA is age 66 and 6 months). 

If you were born in 1960 or beyond your FRA is age 67. 

I hear a lot of people tell me “I can’t retire until 67″.  What they usually mean is they can’t collect full Social Security benefits until age 67.  You can retire whenever you want, you just won’t get your full benefits until then.

Milestone #7 – Age 70 1/2

Here is another one of those Half Birthdays, however, this one doesn’t justify much celebration.

In the year you turn 70 1/2 good ol’ Uncle Sam says you MUST start pulling money out of your IRA’s or 401k’s. 

What? Surely that’s a typo right?  Sorry to bear bad news, but you MUST start pulling money out of your retirement plans. 

In effect, Uncle Sam says to you, “Great job saving that big chunk of money in your 401k and deferring the taxes for all these years, we love you, now it’s time to pay the Piper, which is why we love you even more at this age!”

What do I mean by MUST?  Well, if you want to try to get around pulling money out and paying taxes on it, just realize that you will be subject to a 50% penalty on your distribution!!  Ouch!

This is known as RMD or Required Minimum Distributions.  There is a special formula based on life expectancy that the IRS uses to determine your RMD.  See these worksheets at the IRS website for more info.

One last note on the 70 1/2 rule.  This only applies to your pre-tax retirement accounts.  In other words, money that you have not previously paid taxes on.  So, your Roth IRAs (which consist of after-tax money) do not apply when discussing RMDs. 

So What.

Now that you know about these important milestones what should you do about it? 

If you are unsure how much you need for retirement and are trying to decide where to save more money you may want to keep the 70 1/2 rule in the back of your mind.

Regardless of age, it makes sense for you to look into whether a Roth IRA is right for you.  You might be able to contribute to them OR you might be able to convert existing pre-tax money to a Roth IRA.

If you are 50 or older that’s easy – you should be socking away as much as you can for your retirement.

If you want to retire early you might be able to take advantage of the age 55 exception and early Social Security Benefits.

Knowledge is key to making the right decisions when it comes to retirement.  Don’t let your birthdays come and go without taking advantage of opportunities that exist for your retirement.

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Remember the good old days when you worked for one company all your life and were rewarded for your loyalty with a nice pension and health benefits to help sustain you in your later years?  Add Social Security into the mix and it made for a pretty nice retirement.  

Those days are over.  There are a few companies still providing these benefits to employees, but only to the ones who have been grandfathered in.  Most large corporations and pretty much all smaller ones are doing everything they can to shift the burden of retirement to the employee. 

Thanks for Your Hard Work, But..

Look at GM for example.  When you are losing approximately $4,100 per vehicle sold it’s no wonder you can’t compete with Toyota or Honda.  A big reason for this was due to high labor costs and large pension obligations.  In the restructuring of GM, one of the major issues they were looking at was the release of those pension obligations so they could reorganize, become lean and try to become a viable car company again.

I know someone personally who worked at a large steel company for 30 years, retired with a nice pension and health benefits only to have the company file for bankruptcy, slash his pension and dump his health insurance several years later.  What a way to say “Thanks for all your years of hard work!”  I’m surprised they didn’t ask for the watch back they gave him on his 30 year anniversary.

I’ll Just Live on Social Security

Social Security was signed into law in August 14, 1935 by President Roosevelt as a response to the Great Depression and a desire to provide “economic security” to a broad number of people.  According to Wikipedia, “In 2004 the U.S. Social Security system paid out almost $500 billion in benefits.   By dollars paid, the U.S. Social Security program is the largest government program in the world and the single greatest expenditure in the federal budget, with 20.8% for social security, compared to 20.5% for discretionary defense and 20.1% for Medicare/Medicaid.”

What began as a program to provide help to those underfunded for retirement has turned out to be one of the largest social assistance programs ever created.  The problem lies in the fact that we have fewer people paying into the system than are taking from it thus creating a deficit.  In fact, in early May, the Associated Press reported this about Social Security and Medicare:

The financial health of Social Security and Medicare, the government’s two biggest benefit programs, worsened in the past year because of the severe recession.Trustees of the two programs said Tuesday that Social Security will start paying out more in benefits than it collects in taxes in 2016, one year sooner than projected last year, and the giant trust fund will be depleted by 2037, four years sooner.

Yikes!  I don’t know about you, but this doesn’t bolster any confidence in the program and certainly makes me think about other ways to fund my retirement. 

Retirement: It’s Up To You!

The bottom line in all of this is the fact that when it comes to your dreams, desires and goals, retirement is up to you.  We obviously cannot rely on others to make our goals happen, we need to step up and start getting our finances in order so that we can fund our own retirement. 

What steps can you take to start getting your retirement and financial house in order?  The best place to start is figuring out how much you need in retirement.  Once you have an idea of what it will take to support yourself, you can work your way backwards to figure out how much you need to be saving. 

To get an idea of how much you can save for retirement you should probably develop a budget  and look for expenses you can cut back on.  Use that “found money” to help save into a retirement account like a Roth IRA. 

By being frugal, simplifying your lifestyle, saving aggressively and choosing your investments wisely, you can help get on track for your retirement goals so that when Social Security stops sending you checks or your company no longer provides you with a pension you can still manage to get by on your own.  After all, you have to count on yourself to get your retirement funded properly. 

What About You?

Have you had experience with companies forgoing their pension obligations?  Are you confident that Social Security will be a piece of the pie for your retirement?  What steps have you taken to get your retirement funded properly?

The financial health of two of the biggest government programs has worsened due to the affects of this recessionary market. The Social Security Administration announced today that Medicare is now paying out more in benefits than it is receiving, and that by 2016 Social Security will be paying out more in benefits than it receives.

Insolvency for Social Security has been revised to 2037, four years sooner than was predicted last year. Medicare is in worse shape with predictions of insolvency by 2017. With unemployment reaching 25 year highs at 8.9%, America has fewer workers paying into Social Security exacerbating the problem.

Timothy Geithner, Treasury Secretary and head of the trustees group said, “the longer we wait to address the long-term solvency of Medicare and Social Security, the sooner those challenges will be upon us and the harder the options will be.”

That is a pretty obvious statement. It is also obvious that we shouldn’t depend on the government for our retirement plans. Let this be a reminder that retirement planning is our responsibility.

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