Some Critical Ages for Retirement Planning

Begin age-based catch-up to 457 deferred compensation plan, 401 defined contribution plan, and individual retirement account (IRA). Beginning with the year you reach age 50, federal law allows you to defer a certain dollar amount per year to your 457 deferred compensation plan and qualified defined benefit retirement plan. The amount for 2008 is $5,000, indexed in $500 increments. (This age-based catch-up may not be used in a 457 plan in a year you also use the three-year pre-retirement catch-up.) The age-based catch-up amount for IRA contributions is $1,000.

After separation from service, you may begin withdrawing from a qualified plan without paying a 10 percent penalty tax (this tax does not apply to 457 deferred compensation plans).

You may begin withdrawing from qualified retirement plans, if retired, or from an IRA without incurring the 10 percent penalty.

You can begin receiving your Social Security benefits; however, the amount may be reduced by as much as 30 percent, depending on the date of your birth.

The federal Consolidated Omnibus Budget Reconciliation Act (COBRA) law makes health insurance in most employers’ group health plans available for at least 18 months after separation; however, you bear the full cost, including the portion previously paid by your employer (plus a small administrative fee). Upon age 65 and your enrollment in Medicare Part B, federal law requires access to Medigap health insurance at standard rates. Combining COBRA and Medigap effectively ensures access to health insurance beginning at age 63½.

You may enroll in Medicare, if eligible, and purchase Medigap insurance at standard rates. Your Medigap open enrollment period lasts for six months starting on the first day of the month in which you are 1) at least age 65 and 2) enrolled in Medicare Part B. During this period, an insurance company cannot deny you a Medigap policy, make you wait for coverage, or charge you more for a Medigap policy because of your health.

Depending on your date of birth, you may begin unreduced Social Security benefits at some point during this age range. Further, you may earn any amount without reducing this benefit.

You may begin maximum Social Security benefits, if the starting date was delayed to this age. There is no advantage to delaying benefits past this age.

Required minimum distributions from qualified plans, IRAs, and deferred compensation plans begin the year after you turn 70½.