The 59 1/2 Retirement Rule: Why Is This Age So Important?

What happens when you turn 59 1/2? You reach an important milestone — both for your finances and your life as a whole.

For one thing, it means you’re about to enter what is often a decade of major change. Gallup polling explains that both the expected (66) and actual (61) retirement age fall within these 10 years.

This age signifies a turning point of sorts in your life—on a number of fronts. You may not be retiring at 59 1/2 — an age 59 1/2 retirement simply may not be practical. However, retirement often starts to feel less like an idea and more like something that will actually happen, and relatively soon.

In general, the IRS allows you to make withdrawals from your retirement account at this age without incurring a penalty. This is commonly known as the 59 1/2 rule. It is also nearly a decade after you were granted the right to contribute more to your IRA fund.

In this article, we explore your retirement options, your health-care concerns , and how to obtain the best advice to move vibrantly into those golden years. We also turn back the clock to take a quick look at how history may have shaped your outlook.

Building Your Retirement Savings

Financial professionals provide some depressing figures for many people approaching retirement. The AARP explains that $1 million is used as a baseline figure to start explaining financial needs in retirement, for example. The actual amount is different for everyone, however.

Those are some big numbers. If you’re moving toward retirement and you have little or no money in retirement savings, you’re not alone. Slightly less than half of Americans ages 55-66 have no retirement savings, CBS News points out.

If you’re 59½ and believe you’re ill-equipped for retirement, there’s still hope. The IRS grants those at that age special allowances to help bolster their retirement savings. The agency also exempts taxpayers who have reached that age from paying the 10% early withdrawal penalty.

While you won’t have to pay a penalty, the IRS still requires you to file the money as income on your tax return if you do make a withdrawal from your retirement account. The money will be taxed as income. Certain Roth IRA withdrawals are not taxable, as the IRS makes clear.

If your retirement savings are not quite up to par, the IRS provides a catch-up clause, which applies to people over the age of 50.

Older employees may exceed the IRS’s standard elective deferral ($22,500) to employees’ workplace-based retirement savings plans. Elective deferrals are contributions to retirement plans by the employer at the employee’s request. Deferrals apply to 401(k)s, 401(b)s, SARSEP, and SIMPLE IRA plans.

Annuities also have a connection to this age. Here’s another 59 1/2 rule: Annuity withdrawals after 59 1/2 are not subject to a similar IRS penalty of 10%, as Annuity.org details.

A senior couple works in their garden together.

Hitting the ripe, young age of 59 1/2 puts you within shouting distance of Social Security eligibility. In fact, to break it down, you’re within 130 weeks, at the earliest. American workers are eligible for Social Security benefits at 62, but at reduced benefits.

Although you’re still a ways away, here are some changes to Social Security for 2024:

Social Security benefits will increase by 3.2%.
The maximum earnings limit will increase to $168,600. Earnings above this amount are not taxed.

Your benefits will rise by 8% for every year you delay receiving benefits. If you wait until 70, you’ll receive 124% of your determined benefit.

The SSA uses a formula to calculate your basic benefit, or “primary insurance amount.” The formula indexes your highest average monthly earnings over 35 years of work. The average monthly benefit is $1,369.27.

What are the advantages of receiving benefits at 62 or waiting until 70?

Why Elect to Get Benefits at 62?

You don’t think you’ll earn more than the retirement earning exempt amount, which in 2024 is $22,320 (It traditionally rises every year).

You’re in ill health with below-average life expectancy.

You expect your spouse’s benefits to be larger than your own.

You won’t have other income sources or opportunities to earn money.

Your Social Security checks will be smaller each month, but you’ll collect 8 additional years of benefits.

Why Elect to Get Benefits at 70

You plan on continuing to work and earn more than the SSA income limit ($22,320 in 2024).
You don’t have any retirement savings, you’re single, and you want a larger monthly payment later in life.
Your spouse plans to continue working. A larger portion of your benefits is taxed because of the higher combined income. You’ll keep more of your income by waiting.
You’re in good health and expect to have a long lifespan.
Your spouse is younger or your spouse’s benefit is smaller. When you die, your spouse will get the larger Social Security amount .

Staying Healthy and Strong in the Golden Years

In 6 months, you’ll hit the big one: 60. That’s 6 decades, most of it through the latter half of one of human history’s most turbulent, tumultuous, and exciting centuries.

And with your temperament, you expect to take life by the horns and ride it full throttle. But, naturally, before you proceed, you ought to take stock of the most important part of your life, your health.

Unfortunately, your health changes over the years After all, you’re not 20 years old anymore. You’re going to be 60. On the other hand, 60 just isn’t 60 anymore. In order to live life to the fullest, you do have to keep a closer watch on your health— whether you’d like to or not.

Here’s what you can expect at 60 and beyond

Your skin becomes drier as you age. That means you’re less prone to adolescent breakouts. However, your more fragile skin is susceptible to age spots and wrinkles. Prescriptions like hydroquinone (for the age spots) and retinol (Retin-A for wrinkles) work to give the appearance of rolling back the years.

Them bones may keep you sturdy and stable throughout your 60s — that is, if you’ve been relatively active throughout your life. However, years of sedentary living might pose a few health challenges.

You might be looking at some achy joints from worn cartilage and loss of joint lubrication. Make no bones about it, maintaining a healthy body weight and some strength training may do the trick in restoring some of the spring to your step. Consider consulting with your doctors about supplementing with vitamin D and calcium.

You may want to scratch from your diet those 2-pound bacon cheeseburgers with super sides of onion rings and extra-large chocolate milk shakes. Your metabolism generally slows about 0.7% per year after age 60, Duke University explains.

But, health experts say you don’t have to gain weight. Staying active and cutting calories may be just the thing to keep you fit and trim.

The 60s do pose a unique but easily remedied nutritional challenge. Your body produces less hydrochloric acid, which decreases vitamin B12 availability. Talk with your doctor about a B12 supplement.

Acid reflux may also be a challenge as your stomach empties more slowly. This can also lead to constipation. Adding more fiber and water to your diet can help by protecting you from colon polyps.

Let’s get to the heart of your health

The good news: Older hearts can pump the same blood volume as younger ones. The bad news? Heart disease is a significant risk factor for as age increases. However, medical advances have helped to reduce heart-disease-related deaths since the second half of the 20^th century, journal Circulation Research explains.

Your senses start undergoing changes as you move into your 60s. Simple choices like turning the volume down and staying away from loud noises may help retain your hearing. However, hearing loss grows more common with age. Get a hearing test if you think you’re hearing is declining.

Typically, those in their 60s need considerably more light to read than people in their 20s. A healthy diet that includes fish oil and antioxidants can help.

Less sensitive immune systems make you less allergy prone. Allergies stem from over-reactive immune systems. The downside is you’re more susceptible to sickness. Chronic inflammation also restricts your body’s immune response.

Since inflammation is connected to heart disease and diabetes, losing weight, consuming a healthy diet, and getting adequate exercise become increasingly more important.

Now let’s get to some of the best news about turning 60. You’re going to be happier.

“As you get older, you know that bad times are going to pass,” said Laura Carstensen, PhD, director of the Stanford Center on Longevity, Stanford, California, according to the AARP. “You also know that good times will pass, which makes those good times even more precious.”

You don’t need anyone telling you that money can’t buy happiness (or prevent sadness), but it certainly can make your retirement years more fulfilling and comfortable. Proper financial planning sets the stage for a smooth transition to those autumn years.

Getting Financial Advice

You’re approaching a major turning point in your life. There are plenty of important decisions approaching, and the many 59 1/2 rules and eligibilties to consider. A financial advisor can help you discover wise solutions and develop smart retirement strategies for a rich and exciting future.

If you or anyone close to you would like to discuss how to maximize your retirement benefits with a professional, please give our office a call at 303-741-9772 or schedule your free assessment online.

Talk with a Financial Advisor

If you or anyone close to you would like to discuss how to maximize your retirement benefits with a professional, please give our office a call at 303-741-9772.

¹http://www.aarp.org/work/retirement-planning/info-2015/nest-egg-retirement-amount.html#quest1

²http://www.cnbc.com/2017/06/13/heres-how-many-americans-have-nothing-at-all-saved-for-retirement.html

³/www.cnbc.com/2018/05/11/how-many-americans-have-no-retirement-savings.html?recirc=taboolainternal

⁴https://news.northwesternmutual.com/2018-05-08-1-In-3-Americans-Have-Less-Than-5-000-In-Retirement-Savings

⁵/www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions

⁶/www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-distributions-withdrawals

⁷www.thebalance.com/401k-contribution-limits-rules-2388221

⁸https://www.irs.gov/retirement-plans/plan-participant-employee/definitions

⁹www.investopedia.com/retirement/social-security-changes/

¹⁰www.ssa.gov/news/press/factsheets/colafacts2018.pdf

¹¹www.ssa.gov/planners/retire/retirechart.html

¹²www.ssa.gov/oact/quickcalc/early_late.html#late