Most people want a magic retirement date they can circle in red on their calendar.
But really, a tax-savvy retirement depends on five different milestone ages spread across more than a decade.
Age 62 is the first big marker because you can claim Social Security. But filing early can permanently shrink your monthly check by as much as 30 percent, and if you keep working, your benefits may be reduced before full retirement age.
There’s also the tax side: Social Security taxation is based on provisional income, which includes your adjusted gross income, tax-exempt interest, and half of your Social Security benefits.
So wages, pension income, IRA withdrawals, capital gains, and interest can all push more of your Social Security into taxable territory.
Age 65 brings Medicare. But your Medicare premiums can actually be affected by your income at 63.
That means a large IRA withdrawal, capital gain, bonus, or property sale at age 63 could raise your Medicare premiums at 65. So, we need to think ahead before creating a one-year income spike.
Age 67 is full retirement age for anyone born in 1960 or later. At that point, you can earn wages or self-employment income without Social Security withholding under the earnings test. That gives us more room to decide if you should keep earning, claim your full benefit, and leave IRA or 401(k) money untouched for another year or two.
Age 70½ unlocks Qualified Charitable Distributions. The perk there is that if you have a traditional IRA, a QCD can send money from the IRA to a charity without including that amount in taxable income.
Then come Required Minimum Distributions. Under current rules, RMDs begin at age 73 for people born from 1951-1959, and age 75 for those born in 1960 or later.
But once RMDs start, the IRS decides the minimum amount that has to come out each year. That income can stack on top of Social Security, pensions, interest, dividends, and capital gains.
Before you get to that point, we may have room to take smaller IRA withdrawals, do partial Roth conversions, or use QCDs to reduce the balance that later gets forced out.
Now, as thorough as I’ve aimed to be here, a generic list can’t tell you which moves to make at which age to minimize the IRS’s cut of your retirement wealth.
So grab a time to talk with Tina, Henry, Scott or me, and we can draw out your personalized retirement tax timeline:
