The Most Important Birthdays In Retirement Planning - a podcast by Tony Mauro

There are certain age milestones where you should really pay attention to your retirement planning progress. On this episode, we’ll look at the most important birthdays as you approach retirement and cover the exact things you should be checking off your to-do list at each age.

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Transcript Of Today's Show:

Speaker 1: Hey everybody. Welcome in to the podcast. Thanks for hanging out with Tony and I here on episode number 63 of Plan with the Tax Man. We're going to talk about birthdays. There's nothing special, I suppose, about 63, Tony, but we're going to talk about retirement planning, birthday milestones, whatever you want to call them, things that we might want to know. Since our last podcast actually, became old enough to get social security, at least early, this one's 63. We're going to get into some of these fun stuff today and have a little chat and maybe enlighten people with a few things. Some stuff's probably going to be well known, but just in case, we're going to shine a little light there. What's going on, my friend, how you doing?

 

Tony Mauro: I'm doing good. I'm fresh off of tax season as we're recording this. Spring is here and getting back to normal work schedules and things are good.

 

Speaker 1: Well, good.

 

Tony Mauro: If the weather was better here it would be nice, but that's a whole different topic.

 

Speaker 1: I tell you what, at the time we're taping this, the whole east coast got just a lot of snow, surprise snow, for all up and down. From North Carolina to Michigan, people were posting pictures and "I can't believe it's snowing." I guess technically the time we're taping this yesterday was the close of official tax season. It was the 18th. We had that little extra day because of Good Friday. Yeah, people were like, "It's taxes and it's snowing, this isn't fair."

 

Tony Mauro: It was snowing here on Easter Sunday.

 

Speaker 1: Yeah, there you go.

 

Tony Mauro: It was cold.

 

Speaker 1: All over the place, man. Mother Nature is crazy. But anyway, let's talk about some of these birthdays, Tony. I turned 50 last year, and so that's like the first milestone. I like to say that it's the official kickoff to retirement. Like Memorial Day is not officially summer, and 50 is not officially retirement, but you start getting in the mindset for it when you turn 50, I think. The government helps with a little something there. What's going on at 50? What's an important thing about that?

 

Tony Mauro: The biggest one really is once you turn 50, you're eligible for retirement catch up provisions in either your IRA, or your 401k, simple IRA, pretty much all of them. In plain terms, really it allows you, if you want to and are able to, to stash more money away in those things to help you. The government says, "Hey, you're getting closer. We're going to give you a chance to get more money in there". Probably from their standpoint, you're not going to be dependent on us, but so you can have the kind of retirement you're looking for.

 

Speaker 1: For the contributions for 2022, for your regular 401k, they bumped it up to $20,500.

 

Tony Mauro: Yes. Up from-

 

Speaker 1: 19,500.

 

Tony Mauro: Yeah, 19,500. That's just a regular one. That's just the inflation one, but then you've got a catch up on top of that that jolts it up. I'd have to look it up here because I don't have it in front of me, but it's like 26, $27,000 maybe?

 

Speaker 1: You can do the additionals, which is 6,500 on top of that, for making it a total of 27,000 for 2022. You might say, "Well, $7,000, Tony, that's not a whole lot of money." You figure, again, let's just say 50, right, this is when you can start doing this, so $7,000, and you go to 67, full retirement age, 17 years, $7,000 a year, that's not chicken feed either.

 

Speaker 1: That's not chicken feed, and you throw the earnings on top of that.

 

Tony Mauro: Right.

 

Speaker 1: That's a big plus. I would say to people, too out there that are listening to this that are younger, ideally what you like to try to do till you get to 50 is try to keep upping these contributions, so you're at or around your maximum when you turn 50. It's not easy.

 

Tony Mauro: Right.

 

Speaker 1: You got to start small. You got to learn to live without it, because it's very difficult to just go from well, I'm not putting any money into it. I'm putting 19,000, $20,000 in there because you know that's going to be difficult to do, you have to work with your advisor and work on that.

 

Speaker 1: Well, you know what, treat your future self like a bill. You know, when you're paying your mortgage, you're paying your stuff. When you're in your thirties, pay your future self like a bill. Set aside something each time and say, nope, this is a mandatory bill I got to pay for my future self, and then that way you've got some money there. That's the first thing on our milestone birthdays, important birthdays. Let's go to 55, Tony. This one might be weird to people. A lot of people don't know there's some things you can do at 55.

 

Tony Mauro: At 55, and there's a lot of people that don't know about this, we talk about it to tax clients every year, so it's fresh on everybody's mind since we're just coming out. If you leave your job after you turn 55, you can actually take withdrawals out of some of these retirement plans without any penalties. You're still going to pay the tax, but you're not going to pay that dreaded 10% tax penalty for taking it out early. You know that's the 59 and a half. You can only do this when you leave your job. Like me, I'm turning 55 this year. I can't just keep working and then start taking it out and avoid the penalties. There are some people that are leaving work early, that this could be very beneficial to just to avoid the penalty.

 

Tony Mauro: I would say though, before you pull this out again- That's with all of these, you know, you need to talk to your advisor and figure out what the plan of action is, because 55 is to me, is still a young age. Of course I say that, because I'm turning 55. You got a lot of years left. Is that going to be the right move for you, to start drawing on that with, with everything else you might have in your life going on? It's a good catch there.

 

Speaker 1: There're some caveats, right? Like you said, so you still got to pay the taxes on it, of course. You don't have to pay the penalty. Now we think about this typically as the 59 and a half, the caveat there is, this is from the job that you were just leaving. It's not like some other one you had laying around. It has to be from the one you are leaving at the time of 55, correct?

 

Tony Mauro: At the time, yes. That's correct. Yeah.

 

Speaker 1: All right. Of course, then I mentioned 59 and a half, because it's basically the same thing as 59 and a half, Tony. It's just that it's got that caveat about being the job you're walking away from currently. So you could kind of tap into it early, but most of the time we think of the 59 and a half

 

Tony Mauro: That's the magic number in the retirement world there, because at that point you can withdraw without penalty and you could still be working, still making as much money as you want. Be able to pull money out of those without penalty. Again, generally for most people, it's a little bit before normal retirement for most. They're thinking hard about it, but I don't see a lot of our clients, even on the tax side that are pulling money out that early, unless they just really need it.

 

Speaker 1: Extreme circumstance. You do have the access and it is without the penalty, but you still got to pay taxes.

 

Tony Mauro: Yep, you got to pay taxes.

 

Speaker 1: Bear that in mind. All right, so then we go to the magic old 62. We all know what this is. We can start early social security, but is it the right move? That's the big question.

 

Tony Mauro: That's a real big question, and it has a lot of tax implications, especially if you're going to continue to work. You really need to get with your advisor, get some stats from social security themselves, because a lot of people don't realize this. A lot of people come in on the tax side say, "Well, I'm getting out. I'm I'm out at 62. I'm going to take my social security", which by the way, it's just a safety net anyway. A lot of people don't ever look. Right now they've got it online. You can go in and get yourself a login and see what your benefit is going to be at 62 65, all the different ages. And what a lot of people don't realize though, is they think they're going to take social security at 62, keep working and still get the full benefit. That's not the case. They do reduce it based on how much other income you have and are earning. Once you're over a limit, then they're going to reduce those benefits. It could bite you a little bit, if you aren't careful, and you're not aware of that. You got to keep that in mind, but if you do need it, it is there and you're eligible at that point. Again, work with your advisor to make sure that's the move you really want make.

 

Speaker 1: Well, that's the strategy, right? That's when you really got to start thinking about what kind of strategy do you want in place? Don't just turn it on because the government owes you or whatever that kind of thought process is. We've talked about that many times. Make sure it's the right move. If you need it, you need it, but just make sure it's the right move. Then next milestone birthday, Tony is 65. You mentioned retiring early, obviously 65 is Medicare. Retiring early, that's going to be the big gap to fill for a lot of people, but anyway, 65 we get Medicare.

 

Tony Mauro: You get your Medicare, which is a big milestone for those that are getting ready for it. Transitioning over to that. It used to be the magic number for retirement age. Getting social security, they have started to move that up because they are short on money. Some of us have to wait a little longer to get the full benefit, but you can still take your social security at 65 and see what that is. For a lot of people, that still I think sticks in their mind as to when they want to call it quits. There's all kinds of things you need to have some help with there to make sure that you're getting ready.

 

Speaker 1: Yeah definitely. Taking the right stuff. You can technically start this, you can actually do this early. Right? So for Medicare, what is it like 64 and some change or something like that, where they allow you to start getting everything ready?

 

Tony Mauro: Yeah. I think it's 64 and a half ish and you need to start contacting, be proactive with this Medicare stuff.

 

Speaker 1: Cause it takes a couple months and everything.

 

Tony Mauro: It does. I takes some time. They don't work that fast.

 

Speaker 1: It's a government entity. What are you talking about? They're not fast?

 

Tony Mauro: Give them some time. I remember my dad going through it. It's fairly straightforward. They do a pretty good job. It's just, you got to stay on the timelines.

 

Speaker 1: Exactly. All right, so that's 65. We all know that one. 66/67, this is the FRA. What's that?

 

Tony Mauro: This is the full retirement age now for people. Even in my age group, it's about almost 67 for me. What social security's done, government's bumped back the full retirement age, because again, the funds are a little shorter than they used to be. Now for someone like me to get the full retirement benefit, I can take it then. What it also is, once you get to your full retirement age, then that whole thing that started at 62, you can still work, make as much money as you want and they cannot reduce your benefit. They still tax it though, and they tax it up to 85%, but that's not taking any money from you. It's just being taxed. You got to understand what the difference is there. I think for a lot of us, that's kind of the magic, we're really starting to think, "Okay, it's here now."

 

Speaker 1: You've got the bump, right? There's a decent bump there going from 62 to 67, full retirement age, as far as the money from social security. Then of course there's 70, which I don't have on my list, but we could do it real fast. 70 is that max out. We get questions from time to time. Even if you keep working past 70 Tony, there's nothing else you can do. You need to go ahead and be taking this at this point, because it's not like it's going to continue to grow from 70.

 

Tony Mauro: Right. It won't continue to grow. You should start taking it. The biggest question we get of course is, well, when should I take social security? We could talk out on that.

 

Speaker 1: I just wanted to highlight, because some people actually say, "Well, I'm working and I'm 71. I want to keep contributing." It's like, well you can't.

 

Tony Mauro: No, it's over. You might as well take it.

 

Speaker 1: You've hit the top threshold, so just pull it out. If you still want to work still work, that's fine.

 

Tony Mauro: Still work, yeah, still work. It's just that people, you know, they're always convinced they want to try to beat them. In other words, "Well I want to make sure that I get all of my money." Nobody's handing us pink slips saying when you're going to check out. It is a little bit of some calculations, family history, and then you got to do what's best for you.

 

Speaker 1: Definitely. Of course that's 70, that's the absolute max on the social security. Then there used to be a 70 and a half, which another one of those goofy halves, which I still don't understand why in the world they ever did that with the 59 and a half or the 70 and a half. Either way, they moved the 70 and a half to now 72.

 

Tony Mauro: And this is now where government's saying, "All right, now you have to start taking out what they call required minimum distributions out of some of these accounts." Not all of them, not the Roth and a couple of things, but they're saying, "Hey, we've let you defer taxes long enough. You need to start taking out required minimums." That way, of course they're going to get a little tax money and it's going to force you to pull some money out of these. A lot of people ask me, How much is that going to be?" The companies will of course calculate that, but generally it's based on your life expectancy. They're going to say, "Okay, this is how much you got to take out every year." You don't have to spend it. A lot of people think I got to go spend it. No, you just have to take it out and get it out of that type of account.

 

Tony Mauro: That's the first thing. The other thing is, you got to make sure you do them because there's a stiff penalty if you don't do them believe it or not . A real big one. The IRS is pretty lenient with it. If there's a mistake or something, but if you're intentionally not doing it for several years, they could come back. I think it's still 75% penalty, so it's a big one. You don't want to miss that.

 

Tony Mauro: The other thing too is, as you get to that age, I think you need to start taking a look at what do I think the rest of my life expectancy is going to be, making sure you have all your things in order, because this money, if you don't get it all out of there, it's going to go to your heirs based on who you have in the contracts themselves. It takes a lot of planning. It seems like it gets easier as you get older, but actually there's a lot of stuff to think about.

 

Speaker 1: You have to take these out. Even if you don't want the money, the government's tired of waiting. They want their tax dollars on it. There's things you can do, you can't get out of it. You got to do it. You can look at the strategies earlier on of maybe moving some of that money out of those types of accounts, into different accounts so that you can avoid that kind of thing. You can look at doing something like a QCD, a qualified charitable distribution to like your charity of choice. Right, Tony? That's something else you could do where you send it directly to them. There's different, but yes, basically you can't get around them. The government wants their money.

 

Tony Mauro: No, and if you really want to try to get around it as much as you can, legally, you need to start planning before this happens.

 

Speaker 1: Yeah exactly. Start Roth converting and whatnot earlier, right?

 

Tony Mauro: Yep, the conversions, the trust, things like that. It'll help you some, but it's not totally avoidable.

 

Speaker 1: You got to do it wisely. Otherwise, you kick yourself up into a higher tax bracket, too.

 

Tony Mauro: That's correct.

 

Speaker 1: Those are some important birthday milestones to remember. Make sure that we're doing some of these things. As Tony said, some of those penalties can be hefty. The various different things. Of course, it's just good to know when you're putting a strategy together, hey, at this age I can start doing this, at this age I might want to start doing that, so on and so forth.

 

Speaker 1: If you've got some questions, make sure as always you check out Tony and talk with him before you do anything. You can find him online at yourplanningpros.com, that's yourplanningpros.com. At Tax Doctor Inc is where you can find him most days, unless he's out playing golf or something like that. Reach out to Tony and get started.

 

Speaker 1: Don't forget to subscribe to the podcast, folks, on Apple, Google, Spotify, iHeart, Stitch, or whatever platform you like to use. He's been helping families for 20 plus years. He's an EA and a CFP. That's going to do it this week. We'll catch you next time here on Plan with the Tax Man. Tony, thanks for hanging out my friend.

 

Tony Mauro: All right, well talk to you soon.

 

Speaker 1: I appreciate your time, as always. We'll see you a little bit later here on the podcast.

 

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