Wisdom Wealth Strategies Logo

Four Retirement Terms You Need to Know Before You Quit Working

Get the latest expert financial tips and advice + access to our free financial checklists.

Preparing for retirement? Here are four terms to understand while planning for your post-working years.

Full Retirement Age

Your full retirement age (FRA) is the age in which you can claim your unreduced retirement benefits from the Social Security Administration. Your FRA is between 65 and 67 years old, depending on your year of birth. For persons born in 1937 or earlier, the FRA is 65 years old. The FRA increases each year after that, until it reaches age 67 for those individuals born in 1960 or after. No matter what your FRA is, you have the option to start receiving benefits as early as 62 or as late as age 70. For a current statement of your retirement benefits, showing your benefit at age 62, FRA, and age 70, go to www.ssa.gov, click on my Social Security, and create an account.

Estimated Taxes

If you’ve been an employee all your life, you’re used to your employer taking out all the taxes required each pay period. But once retired, you are responsible for paying your taxes as they are due. Our U.S. tax system is a “pay as you go” system, which requires taxes to be paid on income as you receive it. Therefore, if you have substantial income in retirement from investments, rents, distributions from your retirement accounts, or consulting work or self-employed work that is reported on a Form 1099, you may need to pay quarterly estimated taxes to the Internal Revenue Service. Any income that isn’t subject to withholding of federal tax from an employer or other entity, is subject to estimated taxes. Estimated taxes can be paid using the IRS Form 1040-ES in April, June, September and January of the year in which your taxes are due.

Rollover IRA

At retirement, you have the option of making a tax-free reinvestment of a distribution from your employer’s qualified retirement plan, such as a 401(k) or a 403(b), into an IRA, called a Rollover IRA. The Rollover IRA must be established within a specific timeframe, usually 60 days from the date you receive the distribution. Other options for your money in an employer’s qualified plan may include taking a lump sum payment, leaving it in your employer’s plan, or moving it to another employer’s plan (if you will be working for another employer during your retirement).

Required Minimum Distributions from IRAs

Your required minimum distribution (RMD) is the minimum amount you must withdraw from your retirement account each year. The IRS requires that you begin to withdraw money from these accounts (IRA, SEP IRA, SIMPLE IRA, or retirement plan account) and pay the appropriate taxes when you turn 70½. The exception is the Roth IRA, which does not require withdrawals until the death of the owner. You must take your first RMD by April 1 of the calendar year following the year you turn 70½. Thereafter, you must take your RMDs by December 31.

 

 

wisdom wealth strategies

 

Andrea L. Blackwelder, CFP®, ChFC, CDFA® and Joseph D. Clemens, CFP®, EA are the founders and partners of Wisdom Wealth Strategies. Their shared passion is simple: to bring financial empowerment, understanding, and peace-of mind to people who wish to improve their financial future, build wealth for their families, and achieve financial independence. Click here to find out more about how you can work with the Denver Financial Advisors at Wisdom Wealth Strategies.

Download our Free Financial Planning Worksheets

Join our mailing list to receive your 2024 Tax & Financial Planning Guide, as well as your Net Worth Statement and Spending Plan.