Many people I talk to would love to take early retirement.
What they typically mean is that they would love to retire early from their current occupation, live off retirement savings and find a hobby or passion to pursue and maybe make some income from in their later years!
Early retirement is definitely possible, and I am a big proponent of going after your passions – after all, true happiness is not about the size of your bank accounts, it's about the quality of relationships and pursuing your purpose.
There are some important ages and rules to keep in mind if you are looking at an early retirement – let's take a look at a few of them.
Early Retirement Defined
Normal retirement age defined by the Social Security Administration is age 67 for those born 1960 or later.
For those born between 1943 and 1960 it's somewhere between 66 and 67 (they add a few months for each year born after 1954).
So, for the sake of argument we'll say early retirement is anything prior to Normal Retirement Age of 66.
Early Retirement – Important Rules at Age 50
In 2002, the IRS allowed for a “catch-up” provision for older individuals.
If you are age 50 or older, you may now contribute an extra $1,000 to your Traditional IRAs and Roth IRAs and an additional $5,500 to your 401ks in 2010.
This is a great deal for those looking to open a Roth IRA and squirrel away extra money for early retirement!
Early Retirement – Important Rules at Age 55
Age 55 is a big deal for those looking at early retirement.
Why? Because generally speaking, if you are under age 59 1/2 and take an early distribution from your IRA or retirement plans you get whacked with a 10% premature distribution penalty!
But get this – if you retire or separate from service the year you turn 55 or after, you are allowed to take 401k distributions without a 10% penalty!
Did you catch that? …NO PENALTY for early retirement distributions. This is known as the “Age 55 Exception”.
Watch out though, if you roll your money to an IRA, the deal is done.
You must leave it in the 401k, but you are allowed to take out as much as you want, whenever you want.
This is a HUGE opportunity for those looking at early retirement.
Early Retirement – Important Rules at Age 59 1/2
Ever celebrate your “half-birthdays”?
You'll definitely want to celebrate this one!!
Age 59 1/2 is the traditional age in which you can withdraw your retirement money without fear!
Uncle Sam won't be slamming you with a 10% penalty for pre-mature distributions.
But remember, you MUST be 59 1/2 exactly, to the day, to begin taking them. Don't ask me why, that's what the IRS has deemed.
So don't take a withdrawal at age 59 and 5 months or you'll be sorry.
Early Retirement – Important Rules at Age 62
What's so important about age 62?
Well, only the fact that you can take your for Social Security benefits starting at this age.
It doesn’t mean you have to or even that you should, but you at least have the option available to you.
Of course it will be a reduced benefit, and you'll have to be wary of some rules regarding income earned in retirement, which might force you to pay back some of your early Social Security benefits.
So just because it's available doesn't mean you should snatch it up – you'll need to run some numbers to determine if early benefits are right for you.
Early Retirement – Important Rules at Age 65
Age 65 seems like the common retirement date these days even if it isn't your Normal Retirement Age.
At this age you now qualify to take Medicare, which is social insurance including two main parts.
Part A covers hospitalization and Part B acts as your medical insurance.
You need to apply for Medicare and will want to do that three months before you turn 65.
Are You Planning on Early Retirement?
Readers, do you plan to retire early?
Are there any other important rules or milestones that you'd include?