What is the Retirement Age?

As you start to imagine your life without a day job, you may wonder what the retirement age is. The truth is that you can retire whenever you feel like it – the question is whether or not you can afford to retire at a particular age, given the resources available to you at that age.

So, there really is no such thing as a retirement age. But there are some significant ages that impact when you can , so let’s go over those ages.

Social Security Retirement Age

When most people ask what the retirement age is, they want to know when they’ll start getting Social Security payments. They’ve paid into the system for their entire working lives, and they’re looking for the reward. The age at which you qualify for Social Security benefits depends on when you were born, and a few other factors.

5262427240_159fb72942_m_d[1]The early retirement age for Social Security benefits is 62. That means you can start collecting payments at age 62, but your payments will be smaller than they’d be if you wait until your “normal retirement age.” Starting early is nice because, of course, you get paid earlier – but those payments will remain smaller for the rest of your life (and your spouse, if any, might be affected by the decision to take reduced benefits). That said, if you and your spouse are in poor health and not planning to live to an old age, it can make sense to start at 62.

Widows and widowers can start taking reduced benefits as early as age 60 (or age 50 if disabled).

The normal retirement age, which qualifies you for full Social Security benefits, depends on when you were born:

  • 1937 or earlier – age 65
  • 1938 to 1959 – between age 65 and 67 (see Social Security’s Full Retirement Age for details)
  • 1960 or later – age 67

Do you have to take benefits once you reach the retirement age? No, you can continue working or living off of other assets if you like. For every year you wait after the normal retirement age, you essentially earn yourself a raise of 8% per year (but that only works until you reach age 70).

This is a complicated matter, so if you’re thinking of taking benefits or trying to figure out when to take benefits, be sure to contact the Social Security Administration for complete details, and review all of your options carefully.

Retirement Accounts

Another way to think about the retirement age is to look at when you can spend the money in your retirement accounts without paying tax penalties. Once again, there are a million complicated exceptions and rules out there, but we can at least cover the basics here.

For individual retirement accounts (IRAs) you can consider the retirement age to be 59.5. After that time you can pull money out of a traditional or rollover IRA without an early withdrawal penalty. However, things get a little bit more complicated with other types of retirement accounts.

Roth IRAs require that you’ve had money in the account for at least 5 years (in addition to your being age 59.5) to avoid tax penalties. However, that rule doesn’t apply to normal annual contributions you’ve made – you can take those dollars out at any time. Other types of money (including earnings on your contributions) may be penalized unless you’ve had the account for at least 5 years.

401(k), 403(b) and other qualified plans also use 59.5 as the retirement age to avoid paying tax penalties. However, your plan might have another “retirement age” that means something else entirely (for example, once you reach that age you are allowed to take money out, even though you continue to work at the company). As you can imagine, things start getting confusing when there are multiple retirement ages to keep track of. These plans also allow you to take money out without penalty if you retire or leave the company during or after the year in which you reach age 55 (but it doesn’t work to leave at age 53 and wait a few years).

There are some exceptions to the retirement ages above. If you absolutely need to spend money earlier, you might be able to avoid penalty taxes if you meet certain criteria (such as death, disability, an IRS approved payout schedule, and others). Research the type of account you have, learn about the exceptions, and double-check with a tax expert before taking money out.

Your Job’s Retirement Age

Depending on what you do for a living, you might qualify for certain benefits once you reach a certain age – or a combination of age plus number of years of employment. For example, you might reach the “Golden 80” if you are 60 years old and you’ve worked for 20 years. If you’re in this position, you’re one of the fortunate few who still benefits from a pension plan.

Every employer is different, so you’ll have to speak with your human resources department to find out what the retirement age is at your place of work. As you research this, you may want to inquire if there is any way to retire at an earlier age. Sometimes you can “purchase” credits or years of service to get you to the magical number needed to retire. If you have more money than desire to work, this might be an attractive option.

Unwelcome Retirement

As you plan for retirement, keep in mind that you might not make it to the retirement age for whatever benefit you’re anticipating. Many workers are forced to quit early for a number of reasons: health issues (their own or a loved one’s), an employer going out of business, or a lack of work for their particular skill set. It’s hard for anybody to recover from these events financially, and it’s especially difficult for older workers who are nearing retirement. They may never re-enter the workforce.

Be ready for the possibility of a retirement that comes earlier than expected. That might mean saving a little bit extra, keeping an open mind about working part-time in a field completely unrelated to your current career, or being able to adjust your standard of living if things don’t work out the way you would have hoped.