From the day you are born to the day you die, there are a huge variety of milestones you get to look forward to. In the opening article of this series, which focused on questions to ask your financial planner during an annual review meeting, we mentioned financially significant birthdays. In this article, we will be diving deeper into specific age-related financial milestones and providing ideas on what you might want to think about for each of those time periods.
1. Birth - 30: In The Beginning
Important financial milestones start at birth. Once your baby is born and named, you will want to sign them up for a social security number. If your child is born in a hospital, the medical staff will ask you about signing up for one when the birth certificate is filled out. If your child is not born in a hospital, you might want to contact your local social security office to get them set up.
There are many reasons for your child to have a social security number, even when they are small. Some include:
- being able to claim your child as a dependent on your tax returns,
- opening a bank account for them,
- obtaining medical coverage for them, and
- signing them up for government programs.
Along with getting your child set up with their social security number, in Pennsylvania, you can also set up a 529 savings account. This is one way to save for their education post-high school. A 529 plan can help pay for college or other career education in Pennsylvania, while also giving you state and federal tax benefits.
Another significant milestone is when your child hits 15 years old. This is usually the age when they can apply for their driver’s permit. Financially speaking, your child getting their permit will increase your car insurance premium, typically until they hit age 24 (if they are still on your insurance at that point). You may also want to adjust your family health insurance coverage for this new phase of life to protect yourself from worst-case scenarios; as the saying goes, ‘It’s better to be safe than sorry.’
If you have set up any custodial accounts for your child (where you are named on the account and manage it for them), you will need to transfer those solely into their name once they hit 18, as that is the age they become a legal adult.
The next milestone is your daughter or son needing to get their own health insurance. This happens at age 19 for those who are not going to college, and at 26 for those who are attending college. They may get this insurance coverage through a number of options, such as:
- their employer,
- joining a medical cost sharing plan, or
- through a government program.
Additionally, if your son or daughter is self-employed at age 21, they will be eligible to set up a SEP-IRA. A SEP-IRA is a Simple Employee Pension – Individual Retirement account. While the name is long, its function is simple enough (pun intended): this retirement option could help your budding entrepreneur learn prudence and start saving for their golden years.
2. 30 - 50: In The Middle
While there are not many specific age-related financial milestones during these years, there are a few key practices you might want to consider implementing. Working toward the following goals can help keep you on track with your overall financial trajectory:
- invest in yourself and make sure you have the necessary health and life insurance,
- think about checking out both term life insurance and long term care insurance to cover you later in life,
- continue adding to any savings accounts you have started, and if you haven’t opened any yet, consider looking into it,
- similarly, continue to bolster your investment accounts or look into setting up some if you don’t already have them,
- begin paying off any student debt as soon as you can,
- work towards paying off any personal debt you have, including car loans, credit cards, and mortgages,
consider finding a Certified Financial Planner (CFP®) to help you with your overall financial situation, and a Retirement Income Certified Professional (RICP®) to assist with your retirement plan.
3. 50+: Finishing Strong
As you may expect, a lot of these final financial milestones are related to retirement. Hopefully, at this point, you have been able to manage your money to work the best for you. If you haven’t, don’t worry, there is still time to make up for some of the financial matters that might not be quite where you want them. Working with a RICP® can help you maneuver through your later years.
To start off, at 50, you have a chance to catch up on contributing to your retirement accounts. At this point, the cap on how much you are able to put into your accounts increases. This enables you to add more money at this juncture, which is helpful if you were not able to add as much as you may have wanted to earlier in life. If you are able to take advantage of this, we suggest you strongly consider doing so.
At 55, you are permitted to withdraw funds from certain types of retirement accounts without a penalty. This is known as the rule of 55. The rule of 55 allows you to withdraw from a 401(k) or 403(b) account without paying the 10% penalty. Additional requirements are that the retirement accounts you can withdraw from are the ones you most recently set up. Also, you have to leave your current job in, or after, the year you turn 55 in order to take advantage of this. You do, however, have to pay income tax on the money you withdraw.
Next is the magic number of 59 ½. Once you reach this age, you are able to withdraw from your various retirement accounts without a penalty. As with the rule of 55, you are required to pay any necessary income tax, if it hasn’t already been paid.
When you turn 62, you are able to start drawing social security, but taking your social security at 62 could cost you money. It is estimated that you can lose up to 30% of what you could be paid by not waiting until you reach your full retirement age. A CFP® could assist you in looking at your options when it comes to whether to take social security early or wait.
Age 65 brings you to a very important and time-sensitive financial milestone: signing up for Medicare. You have a seven-month window to sign up. If you don’t, you face having to wait for an open enrollment period, and you might have to pay a late enrollment penalty every month until you are signed up. Medicare allows you to sign up penalty-free three months before your 65th birthday month, and three months after it.
Next is your full retirement age for social security, which depends on the year you were born:
- 1943 – 1954 – age 66
- after 1960 – age 67
Now, while you could retire at this point, you can get more out of your social security if you wait until 70 to retire.
Once you reach age 70, you cannot earn any more credit toward your social security. If you haven’t started receiving your social security benefits, you’ll want to do so at this point.
The final financial milestone comes at age 73. At this point, it is mandatory that you take a required minimum distribution (RMD) from your retirement accounts. The only exception to this is a Roth IRA. A RICP® would be able to show you how to optimize your options when it comes to taking distributions from your retirement accounts.
There are a lot of financial milestones to account for over the course of your lifetime. Seeking assistance from those with expertise in financial matters can help make planning for these milestones easier. As it says in an ancient text of wisdom, “The heart of the prudent acquires knowledge, and the ear of the wise seeks knowledge.” (Proverbs 18:15, NKJV)
Interested In Planning For Financial Milestones?
If you are looking for help in planning for financial milestones, why not contact us to schedule an appointment, so we can discuss the road ahead.
Working with an Iron Point Financial CFP® could help you co-create a financial roadmap that helps you work towards your goals in a sequence that makes sense of your unique timeline, while reminding you of your ultimate destination.
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Iron Point Financial is here to empower you to secure a brighter tomorrow. We operate physical offices in Grove City, PA and Greenville, PA.
We primarily serve residents of Pennsylvania, Ohio, West Virginia and Florida but we also have security registrations for 22 other states across the continental USA.
Further Reading
529 Plan Disclosures
- Investors should consider the investment objectives, risks, charges, and expenses associated with municipal fund securities before investing. This information is found in the issuer’s official statement and should be read carefully before investing.
- Investors should also consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision.
- The investor should consult their financial or tax advisor before investment in any state’s 529 Plan.
