What Is the Normal Retirement Age?
Americans often expect to retire in their 60s. However, retirement age can mean different things, particularly regarding benefits payouts. Even if you have retired from working, your retirement age isn't typically defined as the day you did so, but rather the age you become entitled to receive benefits. If you don't meet the definition of a program's retirement age, you may be denied those benefits, even if you are actually retired.
Normal Retirement Age
The average American expected to retire at age 60 in the mid-1990s. This expected retirement age has been steadily creeping upward, reaching 63 in 2002 and 66 in 2018. According to the poll, the number of people who want to retire after the age of 65 to retire has increased significantly since 1995, when only 12 percent reported wanting to wait that long. The rise in the expected normal retirement age could be attributed to a number of factors, including a rise in life expectancy and increased economic uncertainty.
Social Security Benefits Age
For the purposes of receiving Social Security benefits, the U.S. government defines "early" and "normal" retirement ages. Early retirement is age 62, as defined by the Social Security Administration. Normal, or full, Social Security retirement age varies, depending on your date of birth. For those born in 1960 or later, full retirement age is 70. If you were to retire early, your Social Security benefit would be cut by 30 percent, and your spouse's benefit would fall by 35 percent.
IRA Retirement Age
If you have an individual retirement account, there are two important retirement ages to remember. The first is 59 1/2. If you take money out of an IRA before this age, the Internal Revenue Service classifies your withdrawal as early, or premature. Early IRA distributions are hit with a 10 percent penalty, on top of any taxes. The second important age is 70 1/2. Once you reach that age -- technically, by April 1 of the year after you turn 70 1/2 – the IRS requires you to begin taking money out of your IRA. Failure to do so results in a 50 percent penalty. Both of these age limits are in effect regardless of whether you are still working.
Company Retirement Plans
There is no normal IRS retirement age when it comes to company-sponsored retirement plans. Generally, you can withdraw money from a corporate retirement plan whenever you retire, regardless of your age. However, you'll still owe taxes on your distributions, and you'll also owe the 10 percent early withdrawal penalty if you're under 59 1/2. Exceptions exist, including withdrawals made because of disability, certain medical expenses, IRS levies and separation from service after reaching 55. You can avoid taxes and penalties by rolling over any distribution to another retirement plan such as an IRA.
Government Retirement Plans
Many governments have pension plans that take effect from the date of hire. These plans generally come with a minimum number of years the employee will have to work before retiring, as well as a minimum age. Federal employees born before 1970 can retire at age 57, provided they meet the minimum years of service.
When to Retire
Deciding when to retire is an individual decision, usually made after gathering information on all the options. Although retiring early will usually result in reduced benefits, those who live a longer amount of time have the most to gain by waiting as late as possible to start taking retirement earnings. Since no one can predict an exact death date, though, usually the decision is based on exactly how much income will be necessary to live comfortably.
- U.S. Social Security Administration: Retirement Planner: Benefits By Year of Birth
- IRS: Publication 560: Distributions
- Gallup: Snapshot: Average American Predicts Retirement Age of 66
- The Motley Fool: When Should You Withdraw From an IRA?
- IRS: Topic Number 558 - Additional Tax on Early Distributions from Retirement Plans Other Than IRAs
- Federal Retirement Planning: FERS Eligibility
John Csiszar has written thousands of articles on financial services based on his extensive experience in the industry. Csiszar earned a Certified Financial Planner designation and served for 18 years as an investment counselor before becoming a writing and editing contractor for various private clients. In addition to his online work, he has published five educational books for young adults.