Age is Just a Number… Until There are Financial Planning Implications Around Them
The most commonly cited age in financial planning is 65. As in “Retire at 65” or “Take Social Security at 65.” But 65 is just an arbitrary age that has no real implications when it comes to your finances. For example, most people won’t retire at exactly 65. I plan to work way past 65 if I’m able to because I love what I do and have no intention of stopping. And although taking Social Security at 65 is an option, there are lots of other options that might make more sense based on your situation. So while 65 is an age that many in the industry like to throw out there, financial planning is full of relevant and concrete age-triggered opportunities that do require thought and planning. Here are some of the most important that you should know about and steps to consider:
13 – Childcare expenses incurred after children turn 13 will not be eligible for the Child and Dependent Care Tax Credit or for tax free distributions from a Dependent Care Flexible Savings Account (DCFSA).
Consider adjusting your tax withholding to make up for a higher tax bill and reducing or stopping contributions to a DCFSA.
17 – Child becomes ineligible for the Child Tax Credit.
Fewer tax credits mean higher tax liability so consider adjusting your tax withholdings and estimated tax plans.
18 – Most states use this age to consider people legal adults. Therefore parents may no longer be able to make healthcare decisions for their children or access their medical records.
Consider having the child create a Healthcare Power of Attorney and HIPAA release form so that you can stay involved in their care, if necessary.
26 – Adult children can no longer stay on their parent’s health insurance plans.
Consider insurance alternatives for the child, if they don’t already have employer provided healthcare, and adjust your own insurance coverage, if necessary.
50 – You’re eligible to make “catch up” contributions to retirement account plans.
Determine if you’re in need of additional tax-deferred or tax-free assets to meet your “financial freedom” goals.
55 – You’re eligible to make “catch up” contributions to your Health Savings Account (HSA).
Determine if you’re in need of additional tax-free savings to meet your future medical expenses.
55 – You’re eligible to use the “Rule of 55” and/or Rule 72(t) to take penalty-free withdrawals from retirement accounts.
If you’re looking to retire before age 59 1/2, consider using these rules to gain access to your retirement funds without paying a 10% penalty.
59.5 – You’re eligible for penalty-free distributions from retirement funds (e.g. IRAs, 401Ks) for any reason.
Keep in mind that those distributions that went in pre-tax will be subject to ordinary income taxes.
60 – Starting in 2025, those between the ages of 60 to 63 can make additional “catch up” contributions to employer-sponsored retirement plans above the amount provided to those age 50+ (the greater of either $10,000 or 150% of the regular catch-up amount for 2024).
If you missed the catch-up boat before, here’s your chance to correct the course before sailing off to paradise.
62 – This is the earliest age that you can file for Social Security Retirement benefits.
Although it might be tempting to access these funds now, it might make financial sense to hold off on claiming benefits to enjoy bigger benefits in the future.
65 – You’re eligible for Medicare.
Unless you still plan to be covered by an employer plan as your primary coverage, consider filing for Medicare 3 months before so as to avoid delays that can trigger lifetime penalties.
66 through 67 – Depending on your year of birth, your Full Retirement Age (FRA) to receive full Social Security Retirement Benefits will be between these ages.
Consider delaying filing for benefits past your FRA (up until the age of 70) so that you can get a higher benefit that will last for the rest of your life.
70.5 – You’re eligible to make qualified charitable distributions (QCDs) from IRA accounts.
If you’re charitably inclined, QCDs allow you to make tax-free withdrawals to fund charities. The amount of QCD also does not count as income, which can help you avoid Medicare surcharges.
73 through 75 – Depending on your year of birth, you’re required to take Required Minimum Distributions (RMDs) from pre-tax retirement accounts (e.g., IRAs and 401Ks).
Consider how these mandatory withdrawals will impact your cash flow and tax bill as they are subject to ordinary taxes. Without proper planning, many will get pushed into higher-and-higher tax brackets and not be able to do anything about it.
As you can see, only one important milestone (Medicare) does revolve around that magical “65” age. Every other planning opportunity is scattered throughout our lifetimes. Which one’s have you missed already? More importantly, how much will they cost you in the future?
You’ve likely got time to figure out much of the above. But let us know when you’re ready to start planning for all of your age-related financial milestones. Click below to book a free 15-minute intro call to learn more about how we can help.
