Today, I want to walk you through a timeline of the various stages of life in terms of your wealth building and retirement planning, as well as give you certain milestones, age-based milestones that occur along the way where you could do certain things based upon really IRS laws. or various laws that have taken place that have shaped the financial landscape from the United States perspective.
So, for most people, they start their financial lives at age 18, so at age 18 is the age of majority. where you can then enter into contracts and agreements. So as a minor, you’re really restricted.
You can’t have really your own accounts. You can’t really enter into agreements or contracts. But generally, in the United States that changes at the age of 18 with really one exception.
Over-Arching Priorities for Each Decade
And so, before I kind of get into all those various age-based milestones, I want to give you kind of an overarching, what’s a good thing to be doing at a various decade in life.
So, in your twenties, the main thing that you can focus on really is establishing good financial habits, establishing good financial habits, so it’s things like the basics of doing a budget, avoiding debt, building the muscles of saving, building the muscles of giving, building the mental aspect of being intentional with your money.
Building good financial habits in your 20s will do wonders for you throughout your other decades. Essentially what you’re trying to do is do thyself no harm. What a lot of people do is they get into their twenties, they really go into a debt, they build a lifestyle that is unsustainable and then a lot of people spend their thirties and their forties kind of digging out of that.
That’s really what happened to us. We did a lot of dumb stuff in our twenties, and we spent the later part of our twenties and into our early thirty’s kind of rebuilding that. So don’t do that.
If you can start off with good money habits and you’re doing a great job by listening to this show.
As you transition into your thirties, this is a tough stage of life.
Generally, by now most people are having families, you’re trying to build careers. And so, what you want to try to do here from a financial perspective is Prioritize.
Prioritize, you only have so much money and you have a lot of competing goals and that’s really going to be the case for a couple of decades, really.
But you want to contain, maintain that intentionality, but you want to prioritize.
This is a great thing done through money management budgeting, prioritize where every dollar is going to go because there’s only so many and there’s a whole bunch of. you know, monsters, money monsters wanting to eat every one of those dollars.
So, this is where you really must prioritize.
As you go into your forties, generally the kids are starting to be a little bit older, a little bit more self-sufficient in terms of they’re not little anymore. Your career, you’re a little bit more established, you know, hopefully if you’ve done good things in your twenties and thirties, right, you’re, you’re starting to see some of the benefits of delaying pleasure, working hard.
Being focused with your money. And so, in this stage here, you just want to be purposeful. Purposeful, make it count.
Not what you’re with your money, but also with your time. A lot of older people say it and, and I’m going to say it here and you don’t really appreciate it when you’re in the middle of it.
But some of those times you have with your kids and things like that are precious and once they’re gone, they are gone, so this is where you want to. Be purposeful, take those vacations, be intentional about them, spend time with your family, be purposeful with your money in that stage.
As you transition into your fifties, generally now you kind of have a lot of the child rearing things behind you might still have some college or some in high school, things like that. And this is where you want to maintain focused and intentionality.
You want to be focused on what you’re trying to achieve. Because right now your kind of in that transition of going from one stage into the next stage. And it’s hard for a lot of people.
But this is where you want to maintain intentionality. Really getting focused on You know wrapping up the current stage you’re in and planning for the next stage.
So, this is the decade where most people make the most money in their career because they’re kind of at the peak of it and You don’t have all the pressures of a young marriage a young kid You’re generally established in your career.
And so, this is the time where you can really put on the gas in terms of financially speaking for that Next decade.
In your sixties is when most people stop working, not all, but most. And so again, this is the decade where you’re going to make your most amount of money in your life. So be intentional with it.
as you get into your sixties.
The main things here are to finish, finish the career, finish your, your wealth building and prepare for that next stage. So, retirement transition is a very, very complex thing. It’s kind of a scary thing. It’s certainly an emotional thing because this is the shift where you’re going to turn off your income.
So, you’ve had 40 years of having an income and essentially one day it’s going to kind of go to zero from, at least from an earned income perspective when you quote unquote retire.
And so, you want to make sure that you’re being intentional and planning for that.
As you get into your seventies. What should you be focusing on?
You should be focusing on enjoying your life and ideally giving back. At this point, your kind of the sage, you’re the expert, you’re the elder, you’re the one that everybody kind of looks up to.
So, take some time to enjoy that stage, but also kind of give back. Help other people along the way from your wisdom, your knowledge, and you’re understanding.
Age-Based Milestones
What I want to do is transition into various specific age-based events that have a financial impact. As a person turns 18, they enter the age of majority. They’re no longer a minor and so this is when they can enter contracts. They can have agreements. They can enter that cell phone agreements on their own. They can have bank accounts. They can have an investment account. They can get loans. Hopefully they’re not, but they can. But there’s one type of loan. That an 18-year-old cannot get, and that is a credit card. So, in 2009, the CARD Act, essentially the Credit Card Accountability Responsible and Disclosure Act, prevented anyone under the age of 21 getting a credit card on their own.
So, that’s, you know, sadly, this just reflects the predatory nature of the credit card industry and companies. And so, the federal government said. Hey, you can’t do this. These 18, 19, 20-year-old ones are not mentally. aware of the damage that can be done with a credit card. And so, we’re going to prevent you from giving one to them unless they have a cosigner.
So, at the age of 21 is when a person could get a credit card if they are foolish enough to do so.
Most of the time when you’re doing your FAFSA, filling that out. Your parents’ income and assets are a part of that. However, at the age of 23 or really some other conditions, a person, a student is considered independent.
So, if they’re age 23, if they’re under that and married, if they have dependents. where they’re financially supporting other people, they are deemed as independent, which generally lowers that expected family contribution and therefore might help get grants, scholarships, and other financial aid.
From the age 23 all the way through our thirties, all the way through our forties, really there’s no other age-based milestones that apply.
The next milestone is at the age of 50. So, at age 50, you can begin contributing to retirement accounts with what they call a catch-up provision.
So right now, in 2023, a person, an individual can contribute $6, 500 to an IRA rather Roth or traditional. However, at the age of 50, you get the ability to contribute another extra $1, 000 to that individual retirement account.
Additionally, defined contribution plans, 401ks, 403bs, TSPs, things like that… In 2023, an individual can contribute $22, 500 to that 401k, 403b. account. However, at age 50, you get a catch-up provision, which allows you to contribute an additional $7, 500.
So, a person over 50 can contribute $30, 000 per year to their retirement accounts, giving you either a deferred tax growth or tax-free growth if it is a Roth plan.
The next age-based milestone occurs at the age of 55 at age 55, you then have the catch-up provisions for health savings accounts. So, health savings accounts, unlike the retirement accounts have different ages associated with them.
So, a couple of rules on this is one, you must be in a high deductible health insurance plan. So, a high deductible, it sets a limit for what that deductible is. And if you’re over that, then you can then contribute to a health savings account. It’s essentially like a retirement account for health medical expenses.
So, an individual again, 2023 can contribute $3, 850. to an HSA, but at the age of 55, they can contribute an additional thousand dollars per person.
A family in 2023 can contribute $7, 750. That’s their limit, basically double the single rate. And for each spouse that’s over 55, they can contribute a thousand dollars.
One spouse is over 55. You can contribute an extra thousand dollars, but if both spouses are over 55, then you can contribute $2,000 extra on top of that for a total of $9,750.
The next age-based milestone on the timeline of our financial journey is that of age 55.
At 55, some, and I caveat that, some, Employer qualified plans, so think 401k, 403b, things like that, will allow you to have penalty free distributions at the age of 55. There are a couple caveats though. One, your plan must allow it. It must be the plan from your last employer, so you’d have to leave, it only.
is applicable if you leave your employer.
You can’t stay there. Some plans have in service distributions, but that’s a different thing than we’re talking about here.
The money must stay in that plan, so you can’t roll it over. You can’t leave your job, take that money, and roll it to a rollover IRA or a different 401k. But ironically, you can get another job.
So, there’s a handful of rules along this of how to do it again, this is where good planning from a retirement perspective comes in.
If you’re in your early fifties and you’re looking to leave, retire quote unquote early, if you will, that could be one of the ways you can get access to some of your retirement savings at the age of 55.
The next milestone after that is you’ve probably heard of this one, which is 59 and a half. Why half? I don’t know. But 59 and a half is when you can get penalty free Distributions from your retirement plans, 401k, 403b, TSP et cetera.
Generally, there’s still taxes involved. So, depending on how you contributed, if there’s a tax deferred, when you pull money out, there’s still a tax element to it, but there’s no penalty for it.
If you pull out money from a retirement account early, let’s say in your twenties, thirties, early fifties, you might have tax consequences. And there’s a penalty, a 10 percent penalty, on the entire distribution if you take it out early. There are a couple exceptions to that, education buying your first home, things like that.
But the general rule is, if you take it out early, you’re penalized.
Well, at age 59 1 2, the penalties for those retirement distributions goes away. 59 1 2 is also the penalty free… Distribution age for a life insurance policy that has become a MEC, a modified endowment contract.
Won’t get into a whole lot of the details here, but essentially, they’re in insurance, life insurance.
We’ll talk about more of this in the future. There are savings elements and even investment elements inside of life insurance policies.
What some people have done is they’ve taken a bought a life insurance policy but have really used it for an investment. Aspects of it and the IRS says, hey, they have different taxation rules on life insurance and investments.
And so, this is kind of a game setter. So, if an insurance policy gets too much money put into the savings and investment side of it, it becomes what’s called a MEC, a modified endowment contract, where then it doesn’t follow the life insurance rules. It follows the investment rules where you would, again, would have those consequences of taxes taken out. But there’s also a penalty, a tax penalty, 10 percent if you take it on early.
So, at age 60 is when your social security indexing stops. So, we will go into the whole way social security is calculated in a future episode.
But for now, essentially, the concept is you have worked for all these years, generally close to 40, at least 35 in most cases. And you have wages that are, you know, 20, 30, 40 years ago.
Well, comparing that to expenses today or the inflation costs today. So, what Social Security must do is they have to index. They create an index, and they take that index from your current money that you made in the year of maybe 1980 and they kind of bring it up to current dollars 2023. Well, that index is set and fixed the year you become 60.
So whatever year you become 60, that index then is set for all your ages prior to 59, 58, 57, all the way back to when you first started working, maybe at 14.
And so, they can, they take your actual wages in the year earned times by this index, and then they bring up all their current. You know, former wages to current dollars.
So, I say all that to say there’s no extra boost after you turn 60. So, after 60, you get an index factor of one. So, whatever you make is your index factor. You don’t get a boost anymore. So even though you might not be taking social security till you’re 70, your indexing boost stops at age 60.
And what that means is after you turn 60 and those numbers are put out. You can start to have some good perspective and projections as to what your retirement benefits are going to be. And you can start to make some planning decisions. Do I want to take it early? Do I want to get full retirement age? Do I want to delay it and how it works in with all your other retirement income.
At age 60 is also when social security spousal survivor benefits start. So, this is survivor benefits. So, this means if you had a spouse who was contributing to social security and they passed away at age 60, Generally is when you can begin getting survivor benefits from social security administration from a benefits perspective.
You can get them early under, earlier than that, under certain conditions, but the general rule is at age 60, everybody can begin getting them.
The next milestone is age 62. So, age 62 is when a person who is qualified for social security benefits, they’re either a fully insured worker or they’re currently insured worker, there’s some nuances there.
They can begin receiving, they can apply for and begin receiving. Social security retirement benefits for most people, really for all people they are fully insured. They have a full retirement age of either 66 and some months or 67. Most are going to be 67 at this point. If you are of an already applied for social security or are not already there.
But if you want to, you can take it early. However, there is a reduction for each early year. You take it really for each month. You take it before age 67 or 66 and however many months.
So, the first, the first three years you take it early, you take a reduction of benefits of 6. 66 percent.
For years four and five, so if you take it when you’re 62 or 63, there’s a, an additional 5 percent reduction. So, something again, that goes into that retirement income planning.
At age 62, a spouse can also apply for social security benefits as well. As always, there’s a couple of rules associated with this. The primary one being that the primary worker must also have filed for retirement benefits. So, it’s a scenario that generally goes like this. Let’s say you have one spouse who’s the breadwinner, one spouse who stayed home, raised the kids, took care of the house, supported that other worker, et cetera.
Well, that person doesn’t have, they don’t, they’re not eligible for social security benefits because they never paid into the system, that supporting spouse.
So, there’s a provision in the tax code that allows for a supportive spouse. to get up to half of their spouses, the primary workers, retirement, social security, retirement benefits, but they must additionally be retired as well.
At least, well, at least drawing benefits.
At age 62 also is when a person is eligible to get a reversed mortgage. So, you know what a mortgage is. You borrow money and then you pay it down over time or reverse mortgage works. The opposite is when you have a paid for house and you get payments as income coming into your house. And then when you pass on the house is sold generally by the heirs and the mortgage is repaid back.
Well, that is you’re only eligible for that if you are age 62. So, it’s another way to get potentially in retirement income using your house equity as income in.
Age 65 is when you are then eligible, or I should say is when everyone is eligible for Medicare. It’s the age in which you can apply to receive Medicare.
What most people also don’t realize is they think, hey, I paid into this system. It’s free health insurance for when I’m old, but that is not the case. There are still premiums with Medicare. Medicare Part B and D both have premiums, insurance premiums associated with it. Medicare Part A, B, C, and D all have deductibles associated with them.
And Medicare B, C, and D have coinsurance where you pay a portion and Medicare pays a portion. So, it is by no means free.
But it is compulsory, meaning you must sign up and you sign up for it. Most people generally at the age of 65.
The next age-based milestone is that of your full retirement age from a social security perspective. So, if you were born 1960 or later, your full retirement age, which is when you get your full Retirement benefit.
It’s now longer reduced for taking early is age 67. If you’re born between 1954 and 1959, it is 66 and so many months. So, 54, it’s two months. 55, it’s four months. 56, it’s six months, et cetera. Increments by two months by each year, and then 1960 forward it’s 67, so that is your full retirement age. That is the number at which. All your benefits are calculated from, they’re either reduced for taking it early or added for delaying them later.
Speaking of delaying them later. Age 70 is when you stop getting increments or increases for delaying it. So, if you’re eligible for social security at age 67, but you don’t take it either because you’re working or because you have other income streams or you just don’t need it, or you’ve chosen to delay it.
You get an 8 percent annual increase each year for delaying it, which is very nice. So, age 67 you don’t take it, age 68 you don’t take it, age 69 you don’t take it. For each one of those years, you get an 8 percent increase of the benefit but at age 70 it stops.
So, at age 70 is when you’d want to start your social security if you have delayed it because there’s no benefit in delaying it thereafter.
Age 73 is the next milestone. So, at age 73 is what begins what’s called required minimum distributions or RMDs for short required minimum distributions. So, a required minimum distribution is the idea that for so long the government has allowed you to delay, to put money into retirement and delay paying taxes for the sole benefit of saving for your retirement.
Well, now at age 73, their government says, hey, we’ve delayed this tax payment long enough, we won our income. So, they begin forcing you to take money out of your retirement plans, therefore creating a taxable event.
So, when you take money out, portion of it goes to Aunt Iris and some of it comes to you splitting it off so they get their tax revenue.
And so up till 73, you cannot take it out if you don’t need the money. But thereafter you are forced to take it out and it’s so much per year based upon your life Expectancy and the account balance there’s like everything formulas involved.
It used to be that age was 70 and a half again I don’t know why the half that made everything confusing.
They changed it to 72 But for those turning 73 this year and beyond it’s going to be 73 The Secure Act 2. 0 has already built in provisions to make it 74 and 75 in the 2030s decade, but that’s a way away.
For right now, essentially you either are, have already taking them because you’re 72 or you’re turning 73 and you must take it this year and you want to take them because if you don’t take them and you get audited, it is up to a 50 percent penalty.
So, you must take the money out if you get caught. You must pay the tax, you must take the money, and you’re penalized up to 50%. That is quite a hefty penalty for not taking it, so this is something you want to get right.
And that is the last age-based milestone from an adult perspective.
Micro-Action for the Week
Now, obviously this was very confusing. There’s a lot of age-based milestones, especially as you get into those later years and begin planning retirement.
So, to make this easy for you, I have made a one-page PDF that has the age as well as the name and a little summary. Of what this event is. You can find it at www.truewealth.show and then click the resources tab.
There you can download the age-based milestone timeline PDF and you can have it for your reference.
And that is your micro action for the week is to go to truewealth.show. tab and download this PDF for your reference for future planning.
I hope this is helpful for you.
And until next time, I hope you have a great day.
