Another birthday sneaked up on me recently.
Each year, it brings a reminder of how quickly life passes by and how much unfinished business I have to take care of.
For many people, birthdays signal the need to find out where they are with their finances or to take a critical look at the future. Many financial advisers say that a large percentage of their new clients have decided to seek financial help because they have reached a milestone birthday–say 40 or 50–and want to see what their future holds.
But beyond the psychological aspects of aging, there are birthdays throughout your life that should play a role in your financial activities. Most of them kick in when you are older and have options about when and how you will touch retirement funds, but all of them are worth reviewing because these ages someday will come into play for us all.
– Age 1–Baby’s first year passes quickly, but it’s not without one major consideration, namely that Social Security number. Unless a child is born in December, he or she must have a Social Security number in time for parents to claim the child on their next tax return.
– 14–When children hit this milestone, their income can no longer be included on the parents’ tax return. It’s not a complete step toward adulthood, however, because the kids can remain as dependents on their parents’ return through at least age 18, with full-time students allowed as dependents until they reach 24.
– 21–This is when a child comes into adulthood, meaning he or she takes full control of money received under gifts-to-minors accounts.
– 25–The earned-income-tax credit comes into play for anyone who is between the ages of 25 and 65 and who earns less than $9,500 a year. The earned-income-tax credit is designed to help people with low incomes who are responsible for caring for at least one child in their home for at least half of the year.
– 50–If you are a widow or widower and you are disabled, this is the earliest age at which you can start collecting survivor’s retirement benefits from Social Security.
This is also the age when many financial advisers suggest it is best to consider purchasing long-term-care insurance. At this age, you not only become eligible for some policies, but the coverage is most cost-effective and, if you’re lucky, health problems have not yet cropped up that would reduce your ability to purchase the coverage.
“Age 50 is the right time to look at your long-term-care needs, because that’s when you have the most options and can buy it most cheaply,” says Bill Morrissey of Sound Financial Planning in Mt. Vernon, Wash. “It is also when you have a good idea of what the future holds and whether you can afford to self-insure and use your own money to cover long-term care or whether you need outside help in case something happens.”
– 55–This is the first time you can take penalty-free withdrawals from company-sponsored retirement plans. The only drawback, however, is that you must leave the company–retire, change jobs or get canned–in order to make it happen. Remember, too, that this exception applies only to retirement plans and not to IRAs.
– 59 1/2–At this age, you can take withdrawals from any retirement plan or IRA without facing the 10 percent penalty normally assessed on early redemptions that are not rolled over into another retirement account.
– 60–This is the youngest age when a widow or widower who is not disabled can collect survivor’s benefits from Social Security. If you remarry before this age, however, you permanently lose survivor benefits; remarry after age 60 and you can keep the benefits so long as you do not claim benefits as a current spouse.
– 62–You have now qualified to collect your own Social Security benefits, though you may not want to do so. Benefits paid when you are 62 are forever reduced by as much as 20 percent from the amount you could receive if you wait to the full retirement age.
Do the math. Taking the early benefits means three extra years of payments, but waiting means bigger checks for a lifetime, and the larger payouts generally reimburse you for your patience in seven to 10 years. After that, you live the rest of your life with a better payout.
“You shouldn’t rush into taking Social Security just because you are qualified,” says Ross Levin, a financial adviser with Accredited Investors in Minneapolis. “You may find out that you are better off waiting.”
And while most of the focus at age 62 is on Social Security benefits, this is also the age when you qualify for a Federal Housing Administration (FHA) reverse mortgage. A reverse mortgage allows you to receive cash in exchange for some or all of the equity in your home.
Most lenders follow the FHA’s lead and don’t write reverse mortgages for customers under age 62.
– 65 to 67–If you were born before 1937, you can begin to collect full Social Security benefits on your 65th birthday. If you are younger than that, you fall onto a sliding scale. The Social Security Administration is gradually shifting the age upward; people born after 1960 won’t qualify for full benefits until they hit age 67.
You can still delay taking Social Security benefits beyond this point, which would increase your eventual payout.
If you put off the benefits, however, it is time to sign up for Medicare. Such coverage, which offers hospital and medical insurance, was paid for with your Social Security taxes during your working career. (If you are getting Social Security, your Medicare coverage started automatically).
When you hit 65, Uncle Sam also gives you a little gift in the form of a higher standard deduction and a special credit for the elderly. (You can no longer qualify for the earned-income-tax credit, however.)
– 70–If you are still working, or want to return to the work force, this is a good birthday. From ages 65 to 69, every three dollars of earned income above $13,500 cuts one dollar from your Social Security benefits. That income limit goes away when you hit 70.
– 70 1/2–By April 1 of the year following age 70 1/2, you must begin taking minimum withdrawals from retirement plans and IRAs. The one exception is if you are still working (and do not own more than five percent of the company you work for), in which case your retirement plan–but not your IRA–can remain untouched until you quit.
– Any age–You’re not getting any younger, so use your birthday as a reminder to refresh your will, examine your life insurance and take a good hard look at your financial future. If you aren’t saving enough for retirement, each passing birthday signifies that you are losing the battle against time and should serve as a reminder that you may have to work longer than you want to in order to live out your life with some measure of financial comfort.
