Turning 59.5? Here are the Factors to Consider

For many Americans, the last year of their fifties may inspire reflection about what’s to come after 60. It may be the final decade of working life. Major retirement decisions are made during this time, beginning with a notable half-birthday: age 59 ½. At this point, the usual financial constraints and penalties on retirement account withdrawals no longer apply. Pre-retirees gain greater control and flexibility over retirement savings—another reason to celebrate. Here’s a closer look at age 59 ½, what it means for retirement, and its financial planning implications.

Financial Implications

• Access to Retirement Accounts—Before age 59 ½, withdrawals from individual retirement accounts (IRAs), 401(k)s, and 403(b)s usually incur a 10% penalty with regular income tax owed on the distribution. Penalty-free access to tax-advantaged retirement accounts is an advantage of turning age 59 ½.
• Required Minimum Distributions (RMDs)—Under the SECURE Act 2.0, RMDs begin at age 73 for most retirement accounts. Eventually, for those born in 1960 or later, the RMD age will be 75. Understanding the tax implications of these mandatory distributions is vital to effective retirement planning. Those who access funds from their retirement savings at age 59 ½ should develop a strategic withdrawal strategy to manage their taxable income and be aware of the potential impact of RMDs later.
• Roth IRA Considerations—A Roth IRA permits investors to withdraw contributions penalty-free anytime. However, earnings on contributions are subject to certain conditions. Withdrawals of earnings are only tax-free if the Roth IRA holder is at least 59 ½ and has owned the account for a minimum of five years. Therefore, tax-efficient withdrawals on these accounts and others are part of a broader income strategy.

Investment Strategies

The 59 ½ birthday milestone marks a time for thoughtful adjustments to retirement accounts to strengthen security and encourage continued financial growth and longevity. Investors can help keep their portfolios on course with these action points.

Rethink 401(k)s and IRAs

Traditional retirement accounts such as 401(k)s and IRAs are primary sources of income for many retirees. While individuals can begin penalty-free withdrawals at age 59 ½, those who are still working may choose to leave funds untouched. However, this stage can be an ideal time to consolidate and roll over a 401(k) into an IRA. The reason: Employer-sponsored 401(k)s may offer limited investment choices (approximately 8 to 25) and charge administrative fees on assets. These fees support account management but can diminish returns over time. Rolling over a 401(k) into an IRA can streamline finances, reduce charges, and expand investment options, giving the account holder greater control over their risk and strategy.

For some, maintaining a 401(k) as an accessible source of funds may still be beneficial. A financial advisor can help determine the best course of action for managing 401(k)s and IRAs at any stage of retirement planning.

Reassess Asset Allocation

Participants aged 59 ½ should revisit their investment strategy and risk tolerance to align with their comfort and any change in goals. For example, an individual may shift to a more conservative portfolio, which generally involves reducing high-risk investments like stocks and increasing more stable, income-generating holdings like bonds. The goal is to shield savings from market downturns while generating enough income to support a comfortable retirement lifestyle.

Draw Down Investments

Withdrawal order is the heart of an efficient retirement income strategy. It determines the sequence in which investments are drawn down to minimize taxes and help savings last throughout retirement. A financial advisor can help design a withdrawal plan that reduces tax impact while supporting long-term portfolio growth and stability.

Make Catch-Up Contributions

At age 50, participants become eligible for catch-up contributions through workplace retirement plans such as 401(k), 403(b), governmental 457 plans, and Thrift Savings Plans. These contributions allow individuals to exceed the annual limits on funds deposited into retirement accounts. In 2025, participants aged 50 and above can contribute up to $7,500 for defined contribution plans and $3,500 for SIMPLE plans. IRAs (traditional and Roth) allow a catch-up contribution of $1,000, increasing the total allowable contribution to $8,000. Additional “super catch-up” opportunities are available for participants aged 60 to 63 under SECURE 2.0, allowing contributions up to $11,250. Catch-up contributions help maximize retirement savings and provide more time for investments to grow and accumulate. Participants should take advantage of these options when possible, from age 50 through 59 ½ and beyond.

Several birthdays are significant to the retirement journey, but only one half-birthday dots the map. This is an ideal moment to step back and evaluate how your savings are working for you. It’s a time to align your investments with the retirement lifestyle you envision. An SHP Financial advisor can walk you through the opportunities that accompany the 59 ½ milestone and help ensure your decisions support your long-term security. Click HERE to schedule a complimentary review—a half-birthday present to last a lifetime.