Deciding when to retire is a major decision for most working Americans. Retire too early, and you risk outliving your savings. Retire too late, and you risk limiting the extent to which you can enjoy your leisure time in fairly good health. Here are five retirement milestones to consider as you contemplate the ideal age to make your exit from the workforce.
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1. Age 59 1/2
If you have a retirement savings account like a 401(k) or IRA, 59 1/2 is the earliest age at which you can begin withdrawing money without penalty. While you will pay taxes on your withdrawals with a traditional IRA or 401(k), you'll avoid the nasty 10% early withdrawal penalty that impacts those who fail to wait. Of course, just because you can take money out of your retirement account as early as 59 1/2 doesn't mean that you should. If you're planning to continue working, then it's best to leave that money alone and let it grow. But if you've saved well and are otherwise ready to retire, you're free to use that money as you see fit.
2. Age 62
Age 62 is the earliest age at which you're allowed to start collecting Social Security benefits -- but doing so comes at a cost. If you collect Social Security before you reach your full retirement age, you'll face a reduction in benefits that will apply not just immediately, but for the rest of your life. And it's not a small amount either. Claiming early will reduce your benefits by 6.67% for up to 36 months, and then 5% past that point. If you claim Social Security at age 62 when your full retirement age isn't until 67, you'll wind up permanently cutting your benefits by 30%.
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3. Age 65
At age 65, you become eligible for Medicare -- even if you're not yet collecting Social Security. While you should hold off on Social Security benefits past age 65, it's important to apply for Medicare during your initial enrollment period, which begins three months before the month you turn 65 and ends three months after the month you turn 65. If you don't enroll during your initial enrollment period, your next option is to do so during the general enrollment period that runs from January 1 through March 31 of each year. Failing to sign up during your initial enrollment period, however, could cause your Part B premium to increase 10% for every 12-month period during which you fail to sign up.
4. Age 66/67
If you were born between 1943 and 1954, your full Social Security retirement age is 66. If you were born in 1960 or later, your full Social Security retirement age is 67. And if you were born between 1955 and 1959, your full Social Security retirement age is somewhere between 66 and 67. Waiting until your full retirement age to claim benefits means you'll collect them in full. However, if you're still working or don't need those benefits right away, you could wait and collect delayed retirement credits, which result in a benefits boost of 8% for every year you hold off. Best of all, that 8% increase will remain in effect for as long as you continue to collect Social Security.
5. Age 70
That annual 8% incentive for delaying Social Security only lasts so long. In fact, once you reach age 70, you're no longer eligible for an increase in benefits if you hold off on collecting -- so you might as well claim them at that point and use them as you see fit.
Finding your ideal retirement age
While the above milestones should help guide you toward the right retirement age, there are other factors to consider when weighing your options. For example, if you enjoy your job and don't consider it stressful, you may come to find that working longer is just plain good for your health. On the other hand, if retiring on the earlier side allows you to care for or help out family members, that's a good reason to stop working sooner.
Finally, remember that while retirement is a big decision, it's not necessarily a permanent one. You can always return to work in some capacity if you find that you need the mental stimulation or extra cash. Just be honest with yourself both now and in retirement, and with any luck, you'll make the right choice for yourself and your family.
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