Age 59 ½ isn’t considered a popular milestone, but it probably should be. At this age, a flurry of new financial options and benefits become available to you.
It’s also a good time to double-down on your investment strategy so that you can make your retirement as comfortable as possible.
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If you’re quickly approaching or already at this underrated milestone, here’s what you should know.
New options available at 59 ½
According to the Internal Revenue Service (IRS), “most retirement plan distributions are subject to income tax and may be subject to an additional 10% tax.”
However, at age 59 ½, withdrawals are no longer subject to that 10% penalty. That means it’s easier to start drawing down cash from your 401(k) plan, Roth IRA or any other qualified retirement program.
To be clear, just because you can easily withdraw money doesn’t necessarily mean you should. But having the option to start living off some of your nest egg gives you the flexibility and peace of mind you need as you rapidly approach retirement.
One way to take advantage of this flexibility is to consider commencing a Roth IRA conversion. This maneuver is when you take money from a traditional retirement account (like a traditional IRA or 401(k)) and move it into a Roth IRA.
When you do this, you pay taxes now on the money you move, but then it can grow tax-free — and you won’t owe taxes when you take it out in retirement.
At age 59 ½, your withdrawals are no longer subject to a 10% penalty, which means it’s cheaper to start moving money to the Roth IRA. This age is also a sweet spot because it’s roughly 13 years away from age 73, which is when you have to start making Required Minimum Distributions (RMDs).
To be fair, most Americans retire before the age of 65, while the median retirement age is 62, according to research from the Transamerica Center for Retirement Studies. That means you may be just a few years away from retirement at 59 ½, and should be ramping up your efforts in this final stretch.
Read more: Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
Final sprint before retirement
Every single year of added income or compounded growth can make a big difference to your lifestyle in retirement. With that in mind, 59 ½ is the ideal age to set yourself up so your golden years are as comfortable as possible.
Aggressively paying down any outstanding debt is a great idea at this age. According to the 2022 Survey of Consumer Finances, many retirees are still carrying debt.
Households headed by people aged 65 to 74 had a median debt balance of $45,000. But if you aggressively pay down debt from the age of 59 ½ to retirement, you could put yourself in a better position than most of your peers.
You could also double down on your savings and investment strategy before your income stops. You can start making catch-up contributions to your 401(k) and other retirement plans from the age of 50, according to the IRS, but 59 ½ isn’t too late to start doing so.
Finally, this is the right age to consider all the subjective aspects of your retirement lifestyle. Take the time to figure out what you value most and create a strategy to make that possible in this final stretch before you leave the workforce.
If you want to spend more time with family, consider moving closer to where they are, and if you don’t enjoy home maintenance, consider moving to a condo where management takes care of it all.
Consider this age a pivotal period from your old life to your new one.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
