Turning 70 in 2018? 3 Things You Need to Know
Turning 70 is a pretty notable milestone. If you'll be reaching 70 this year, here are a few financial matters that need to stay on your radar.
1. It's time to start collecting Social Security
If you're about to turn 70 and have avoided filing for Social Security thus far, good for you! That's because for every year you hold off past your full retirement age, you get to accumulate delayed retirement credits that work to boost your benefits.
Now if you were born in 1948, it means your full retirement age is 66, and that you'll have effectively increased your benefits by 32% -- for life -- by waiting until your 70th birthday to file. However, it also means that once you turn 70, there's no sense in delaying those benefits any further, since delayed retirement credits cease to accrue from that point on.
2. You'll need to start thinking about required minimum distributions
The money in your traditional IRA or 401(k) can't just sit there forever. Rather, once you turn 70 1/2, you must start taking what are known as required minimum distributions, or RMDs, to avoid getting slapped with some pretty harsh IRS penalties. The exact amount you'll be required to withdraw each year will depend on your account balance and life expectancy at the time, but because RMDs automatically trigger taxes, it pays to plan for them in advance.
Now the good news is that if you're turning 70 1/2 this year, you don't necessarily need to take your first RMD this year. In fact, you get until April 1, 2019 to make your initial withdrawal. Furthermore, if you're not turning 70 until the second half of the year, you won't have to worry about RMDs until April 1, 2020. Still, it's a good idea to read up on RMDs and know how much of your account balance you'll need to withdraw in the not-so-distant future.
Keep in mind that if you fail to take your RMD in full, you'll be assessed a tax penalty equal to 50% of whatever amount you don't remove from your account. So if, for example, your first RMD equals $6,000, of which you only withdraw $3,000, you'll lose out on half of the remaining $3,000. Ouch.
That said, if you have a Roth-style retirement account, you don't need to concern yourself with RMDs at all. The requirement to take yearly withdrawals only applies to traditional tax-advantaged retirement accounts.
3. You don't need to quit your job if you're not ready
These days, a growing number of Americans are working until age 70, or are planning to do so. The good news is that if you're turning 70 this year and want to stay at your job, there's no reason not to. Research tells us that retirees are 40% more likely to suffer from depression than working adults, so if you enjoy your job and are physically able to keep doing it, you'll not only get a chance to boost your savings, but avoid growing restless and bored.
So what about Social Security and RMDs? Well, there's no need to worry about the former -- once you reach your full retirement age, you can work and collect benefits simultaneously without having those payments reduced. If you're turning 70 this year, it means you're already well past full retirement age, and therefore eligible for your full benefit payments regardless of how much you earn.
As far as RMDs go, while there's no avoiding that requirement when you're dealing with an IRA, if you're housing your retirement savings in a 401(k), and you're still employed by the company sponsoring it, you can get out of taking those mandatory withdrawals for as long as you remain employed. This assumes, however, that you don't own 5% or more of the company in question -- but if you're a standard employee with no stake in the business, you're good to keep collecting your paychecks and leaving your savings alone.
There are lots of reasons to celebrate turning 70, so as you prepare to blow out those birthday candles, take a little time to think about the financial consequences of reaching this milestone. With any luck, the coming year will be a rewarding one for you in more ways than one.
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