Early Retirement Planning - Our Important Age Milestones

A Retirement Timeline by Emily Brandon of U.S. News & World Report writes on milestone ages for retirement contributions, retirement withdrawals, medicare and social security.

Overall, I thought is was a good summary of effect of age on one's retirement planning. As someone who retired in my forties, I consider the following three ages to be most important for financial planning:

59 1/2 - IRA and 401K withdrawals can be made without penalty and are taxed as ordinary income. In addition, I can exercise a tax strategy called Net Unrealized Appreciation.

70 - Although one is eligible to start at 62, waiting until 70 will maximize the amount of the monthly social security payments, which would be about 75% higher than at 62.

70 1/2 - Required Minimum Distribution (RMD) payments must be taken from traditional IRAs and 401Ks. Roth accounts are excluded from RMD payments.

59 1/2 is important because we need sufficient savings in our taxable accounts to pay for living expenses from our retirement age until 59 1/2. That way we can avoid a penalty or a 72-t payment schedule for using funds from a retirement account. 70 is important since we will want to have sufficient retirement savings from 59 1/2 to 70 to delay taking social security until the payments are at the maximum. Getting maximum payments may be important should our lifespan exceed our estimate of mid-90s. Finally, 70 1/2 is important because we want to minimize the amount of funds in IRAs and 401Ks, since they are subject to an RMD. Otherwise, we may be forced to make taxable withdrawals, even when the funds are not needed.

While I still need to do the calculations, I believe our early retirement will be successful if we have enough funds, allocated appropriately, when we reach each age milestone.

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This is not financial or retirement advice. Please consult a professional advisor.

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