Retiring Too Early Could Prove Costly
Early Retirement May Be Tempting, But It's Not Financially Prudent
Apr 6, 2009
In today’s hurried world where traffic jams and crowded cities are par for the course, the thought of lazying away in a gently rocking hammock under swaying palms is alluring. While so many workers are seduced by this dreamy vision of retirement, the reality may be quite different depending on how the person has saved for retirement.
Assuming the worker began saving money for retirement early, that money will have accrued over the decades into a sizable nest egg. But while the retirement age to start receiving 401(k) and IRA distributions is 59-1/2, the minimum retirement age to start receiving social security benefits is 62. However, that doesn’t necessarily mean the person should retire at age 59-1/2 or age 62.
Retirement Planning: What Is Retirement Age for Social Security Benefits?
Retirement age varies by country. Recently, Canadian provinces have dropped mandatory retirement at age 65, allowing employees to continue working until age 70. In the United States, workers can retire between age 62 and 70. However, in order to receive full retirement benefits, the person must be aware of his or her full retirement age according to the U.S. Social Security Administration. Retiring before the full retirement age will result in a dramatic decrease in social security benefits.
The Social Security Administration calculates full retirement age by date of birth. Full retirement simply means the age at which the person is able to retire with full benefits. In order to determine full retirement, people can go to the Social Security Administration Retirement website.
Retirement Planning: What Is Retirement Age for 401(k) and IRA Distributions?
While the term retirement age is typically applied to eligibility for government retirement benefits, it also means when the retiree is eligible to begin receiving distributions from his or her retirement savings account such as a 401(k) or IRA. Generally, people can begin withdrawing from their retirement account at age 59-1/2. However, waiting another 9-10 years until full social security retirement provides a far more comfortable retirement.
Retirement Planning: What Is The Ideal Age of Retirement?
In spite of minimum age requirements for social security and retirement fund withdrawals, the ideal age of retirement is age 70. At age 70, retirees can enjoy maximized social security benefits. And at age 70-1/2, retirees must begin to withdraw from their personal retirement accounts which have maximized compounding interest.
Retirement Planning: The Bottom Line on Early Retirement
Unless the person accepts an early retirement buyout, retiring before age 67 is financially unwise. While the person can begin to make withdrawals on his or her IRA or other retirement investments by age 59-1/2, social security retirement benefits won’t kick in until several years later. The wait is even longer to take advantage of full social security retirement benefits.
However if the person waits until age 70 to retire, he or she will enjoy a comfortable retirement with vastly increased distributions from an IRA plus additional money from social security retirement benefits. Thus, if possible, it’s best to defer retirement until age 70.
See related articles, “Retirement Planning 101,” “Retirement Planning for the Self-Employed,” and “Retire Tax Free With a Roth IRA.”
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