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Your Retirement Investments: The Major Milestones

Barbara Marquand | guest writer for GoTalkMoney

You pass a number of important milestones on your way toward retirement. Here are the big ones to keep in mind as you manage investments:

Boost Investments by Saving To the Limits: 49 and Under

Current tax law lets you contribute up to $16,500 to a 401(k), $5,000 to a traditional or Roth IRA and $11,500 to a SIMPLE IRA plan this year. Save as much you can up to the limits, and by all means save at least up to your employer's 401(k) match if you're lucky enough to have one. Otherwise you leave money on the table.

Make Up For Previous Low Savings Rates and Play Catch Up: Age 50 and Up

Government tax provisions let you contribute even more to tax-deferred retirement plans. This year you can put an extra $5,500 into a 401(k), another $1,000 into a traditional or Roth IRA and an additional $2,500 toward a SIMPLE IRA. Not all 401(k) plans allow catch-up contributions, though, so check with your employee benefits department to learn the rules for your plan.

Distribution Tax Penalty Lifts: Age 59 1/2

Before age 59 1/2 you pay a 10 percent tax penalty for taking early withdrawals from tax-deferred plans. You still must pay taxes on the income for whatever you withdraw from tax-deferred plans, but you don't pay the early withdrawal penalty starting now.

Social Security Kicks In: Age 62

The earliest you can receive Social Security retirement benefits is 62, but the government doesn't consider 62 full retirement age, so your monthly benefits are reduced by 20 percent to 30 percent, depending on the year you were born. If you were born after 1960, for instance, your monthly benefit is cut by 30 percent.

You still can receive Social Security benefits even if you continue working, although benefits are decreased by $1 for every $2 you earn above the annual limit, which is $14,160 in 2010. In the year you reach full retirement, your benefits are decreased by $1 for every $3 you earn above a higher limit, which in 2010 is $37,680. Then, starting in the month you reach full retirement age, there is no limit on your earnings for receiving your full Social Security monthly benefits.

Medicare Eligibility: Age 65

Sign up for the Medicare hospital insurance plan (Part A) within 4 months of your 65th birthday, regardless of whether you begin receiving retirement benefits. You have the option of signing up for the Medicare medical insurance (Part B), which covers doctors visits and other medical services not covered by Part A, and drug coverage (Part D). Unless you're covered by an employer's plan, you have three months within your 65th birthday to sign up for these parts. Don't delay, or you could pay more for the benefits down the line.

If you stay on an employer's plan, you can sign up for Medicare medical and drug coverage within eight months when you leave your job or the employer's coverage ends without facing any additional costs.

Full Retirement Age: Age 67

Your full retirement age -- when you can receive full Social Security monthly benefits -- varies according to the year you were born. If you were born in 1955, the full retirement age is 66 and 2 months. Those born in 1960 or later reach full retirement age at 67. You can delay taking Social Security benefits to increase your monthly benefit until age 70. After that, there is no financial incentive to delay.

Mandatory Distributions from Retirement Investments: Age 70 1/2

You must start taking minimum distributions from tax-deferred retirement accounts starting at this age, or face a hefty tax penalty. Roth IRAs don't require minimum distributions because contributions are made after taxes.

Keep these milestones in mind as you manage your retirement investments, including stock portfolios and cash accounts, such as CDs, high yield savings accounts and money market accounts.

Disclaimer:This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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