The age at which you choose to retire is based on personal resources, more often than minimum retirement ages. While each retirement plan has its own minimum retirement age, you can often access the plan while you are even younger, with reduced benefits or tax penalties. You can set the age at which you will begin collecting benefits based on the different types of plans you participate in, and how big a factor Social Security is in your retirement.
IRAs and 401(k)s
You can begin to withdraw from your 401(k) or IRA without paying any penalties when you reach age 59 1/2. If you begin to withdraw from these accounts before this age to meet regular living expenses or for any other purpose that does not enjoy a special exemption, you will pay 10 percent of the amount that you withdraw in tax penalties. This is in addition to any regular income taxes due on money you withdraw from a traditional IRA or 401(k).
The minimum age that you must be to collect full Social Security benefits varies according to your date of birth, but the minimum retirement age for Social Security is, in all cases, 62 years of age. However, if you begin to collect benefits before your full retirement age, the benefits will be reduced. For example, a person who was born after 1960 will receive the full benefit if he delays collecting benefits until age 67. If he chooses to take benefits beginning at age 62, the benefit is reduced by 30 percent. If he delays collecting benefits until after age 67, he will be eligible for increased benefits over the full amount.
Defined Benefit Plans
Once a staple of retirement planning, defined benefit plans are on the decline. These are private pension plans from companies or for government employees that set retirement benefits based on tenure, salary and the age of the employee. Each of these plans will have its own requirement for a minimum retirement age. Depending on your plan, you will receive a higher benefit amount for delaying your retirement.
Special 401(k) Circumstances
If you leave your employment permanently at age 55 or older, you are covered by the "separated from service" exemption. This means that you can withdraw money from your 401(k) plan with the employer that you separated from and not owe the 10 percent tax penalty. It does not matter if you quit or were fired or laid off. In fact, you can also begin to work for another company, and still take advantage of these penalty-free withdrawals.
Your retirement age is a personal decision. While most experts will encourage you to leave money in a 401(k) or IRA as long as possible to take advantage of the tax-deferred or tax-free investment growth, you may experience a medical condition, job loss or other reason that taking the money earlier makes sense, even with the penalties if you have not reached age 59 1/2. You can also take advantage of penalty-free withdrawals from an IRA or 401(k) from a previous employer by taking substantially equal payments based on your own life expectancy, under Rule 72(t). Once you begin such a plan, you must keep it in effect for five years, or until you reach age 59 1/2, whichever is longer.
Social Security Early Retirement Factors
Social Security benefits generally provide the same amount over your lifetime if you take a reduced benefit earlier, or an increased benefit after your full retirement age. Early retirement as soon as age 62 is a good idea if you are in poor health, and do not expect to live as long. Likewise, if you are in extremely good health at age 62, and still working full time, delaying benefits can make good sense to take advantage of the increases in monthly payments, particularly if you expect to live well past your ninetieth birthday.
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