My husband and I may not have figured out where we will retire yet, but we figured out his right retirement age. Our financial planning is based around a retirement age of 65 for my husband. At that point, our kids will be adults, out of college, and our debt will hopefully be minimal. That age has always been his goal unless he receives an early retirement package that makes it financially possible to retire earlier.
One of our friends intends to retire when he turns 55. He only wanted to work for a certain length of time and travel and have fun while he and his wife are healthy and able. He has planned his working career and investments around this earlier retirement date.
Another friend plans to retire right when he turns 62 because the average age of death for men in the United States is now 75 (2020 data). He feels life is too short to work forever. My 79-year-old father still works part-time because he enjoys his job and likes having something to do. I honestly don’t know when or if he will retire!
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Social Security Benefits Depend on When You Were Born
Will you depend on Social Security checks for your retirement income? In 2021 the age you can receive your full Social Security retirement amount is 66 years and 10 months, although you can take a reduced Social Security payout of 70 – 75% starting at age 62 depending on your year of birth.
The longer you wait to start receiving a Social Security check, the more you will get each month for your lifetime, up to age 70. Since Social Security determines your payments based on the highest 35 wage-earning years, it is tempting to continue working to get a higher payment if you are in good health and your income increases as you get older. If you don’t receive Social Security payments after your full retirement age, you will also get a bonus of 8% annually until age 70. You do not accrue any additional Social Security credits after age 70.
However, if you don’t file by age 70, you will miss out on money that is due to you. The Social Security Administration will only pay six months of back payments, so if you delay past 70 ½ years old, you will lose that money forever. If you choose to wait until age 70 to take payment, be sure to file on time!
What happens if you work and still take Social Security benefits? If you start collecting a Social Security retirement benefit before your full retirement age, you are limited in how much you can earn without being penalized. Your earnings are capped at a maximum of $18,960, and for every $2 you make, you would be penalized $1. However, if you are your full retirement age or older, you can earn as much as you want with no penalty.
When Can You Access 401k Plan Monies?
401k plans have different rules and tax considerations in regards to your age and situation. There are penalties for any 401k withdrawals taken before age 59 ½ unless you are unemployed. Usually, you can only withdraw from plans offered at places you used to work. You can’t withdraw from your current place of employment if you are working. Some plans allow loans or withdrawal in cases of hardship. The loans DO have to get paid back. And remember, while you have out the monies for a loan, they are not growing!
If you are between 55 and 59 ½ and leave your job, you can withdraw monies penalty-free as long as you leave the money in the company 401k plan. This only applies for your last employer. If you are under 59 ½ and withdraw from other plans you previously held, you will get hit with a penalty. This includes any rollovers you may have done from your previous plans. Once you reach 59 ½, you can access all prior 401k plans with no penalty. You will simply pay regular income taxes with no liability. You can withdraw a different amount each year, depending on your needs.
Once you reach 72 (in 2021), you must remove at least the Required Minimum Distribution (RMD) amount from your employer-sponsored 401k retirement plan. Failure to do so will result in a 50% tax penalty from the IRS. That’s a pretty steep price to pay. If you withdraw from an Individual Retirement Account (IRA) before age 59 ½, you will have to pay a 10% early withdrawal penalty tax and regular income taxes
What about Pensions?
My husband has a pension from a company where he worked for over 20 years. Eventually, they switched to a 401k for new hires, but fortunately, his plan was grandfathered. He can start drawing from his full pension at 65, although reduced withdrawal is allowed earlier in certain circumstances. Like Social Security, if you begin collecting early, 55 in some cases, the size of your monthly payout is less. For a proper understanding of what you will gain or lose depending on your age, ask for a breakdown from the people who run your plan before starting payments.
Medicare and Private Insurance Quandaries
A big concern regarding early retirement is the expense of private health insurance. Early retirees are not eligible for Medicare until age 65. If you choose to retire early, you need to make sure you can afford to pay for medical insurance and care. Supplemental insurance is necessary to bridge the gap until you turn 65. Since I am a few years younger than my husband, who carries the family insurance, we will need to keep this issue in mind if I retire when he does. I would need to plan to buy supplemental insurance. Another option would be to continue working until I am 65 and choose health insurance through my employer until I qualify for Medicare. It’s honestly something I didn’t consider until writing this article.
Final Thoughts About the Best Retirement Age
62, 65, or older! The average current retirement age in the United States was 64 in 2021. The ideal retirement age is going to be different for everyone. It depends on health, lifestyle, job status, and finances. You may choose to begin taking Social Security while still working after age 62. Or you may decide it is a wise decision to defer taking Social Security until later to accrue delayed retirement credits. A certified financial planner can help develop a sound strategy that examines your current retirement savings rate and help with Social Security planning to determine the perfect retirement age for you.
In my mind, my husband’s 65 goal is still good for us because we have made a plan. I will have to consider if I will work until I am 65 because of health insurance or whether I will pay for private insurance out of pocket in that time. Whether it may make sense for me to work a few more years depends on our health and travel plans. I recognize that things may change with time. There will always be certain unknowns such as illness, job loss, or the death of a spouse. I recommend creating a retirement budget for your senior years so you can reach your retirement goals. It will help you determine your wants, needs, and income so you can better plan what your retirement looks like at any age.
If you are interested in searching for a job you can explore jobs for retired people on Jooble.
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Christine Seaver is a freelance writer that writes about personal finance, budgeting, and debt. She is a frequent contributor at Dividendpower.org. Christine works as an office manager by day and a cookie baker at night. She lives in Massachusetts with her family.