There are different stages of retirement, just as there are different stages of any portion of life. Each stage has its own challenges and needs, nearly all of which can be addressed by planning in advance. A recent Forbes article, “Tax-Saving Strategies For Three Stages Of Retirement,” describes the different stages and their requirements.
Pre-retirement is age 50-64. This is when you’re entering your final years of work and getting financial retirement and estate plans in order. The most critical tasks:
Make the most of retirement plan opportunities, including maxing out contributions to any employer-sponsored plans, especially those with matching features.
After age 50, wage earners qualify for catch-up contributions to IRAs and 401(k) plans. In 2024, a 50-year-old can contribute an additional $7,5000 to a 401(k) and $1,000 more to an IRA.
This is the time to review your Social Security benefits. While you can take benefits any time after age 62, by waiting until your Full Retirement Age (FRA) or later, your monthly benefit will grow. This is a personal decision, as some people need to take Social Security earlier, while others can draw income from retirement accounts until they reach age 70.
Active retirement is considered ages 65-74. The focus here is wrapping up your working life and ensuring that you have enough money to support your lifestyle. The factors to focus on:
Required Minimum Distributions (RMDs) are the least amount of money you can take from your retirement accounts. The SECURE Act 2.0 extended the time you have to leave money in these accounts. However, you’ll need to take your RMDs strategically so you don’t get pushed into a higher tax bracket.
After age 70 ½, you can make Qualified Charitable Distributions (QCDs) directly from your IRA to any qualified charitable organization. You may donate as much as $100,000 per year if it is a direct donation from the IRA to the organization. For people who will make donations with or without tax benefits, this allows you to make your donations, reduce taxable income and leave a legacy while still living.
Late retirement is anything after age 74, where you may want to focus your attention on passing wealth to heirs. You should have an estate plan in place by now. However, it probably needs to be reviewed. Have any of your beneficiaries passed away? Is the person you named as your executor still willing to perform the tasks? Review your estate plan with your estate planning attorney to ensure that it complies with your state’s laws and wishes.
If you’re concerned about estate taxes, this is the time to use the annual gift tax exclusion to transfer wealth to heirs with no tax liability. In 2024, you may gift $18,000 to as many people as you want as a single, while married couples may gift $36,000 to as many people as they wish.
Reference: Forbes (July 12, 2024) “Tax-Saving Strategies For Three Stages Of Retirement”
