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3 Rules For Picking The Perfect Retirement Age

3 Rules for Picking the Perfect Retirement Age

Your retirement age shouldn’t be an arbitrary number you pick out of a hat. Rather, you’ll need to put some serious thought into that age to ensure that you retire at what turns out to be the right time.

While there’s no such thing as an official U.S. retirement age, there are a few age-related milestones you should know about:

  • 59-1/2 is the earliest age to take penalty-free 401(k) or IRA withdrawals
  • 62 is the earliest age you can claim Social Security
  • 65 is the age you become eligible for Medicare coverage
  • 66 is the age at which workers born in 1954 or earlier can file for Social Security and collect their full benefits; this age increases to 67 for those born later
  • 70 is the age at which you stop accruing Social Security delayed retirement credits
  • 70-1/2 is the age at which you must starting taking required minimum distributions from your traditional IRA or 401(k)

Of course, you don’t need to retire at one of the above ages. In fact, you can retire at any age you want, provided you follow these key rules.

Senior couple reading on a picnic blanket

Rule 1: Make certain your savings are adequate

An overwhelming number of seniors neglect to save independently for retirement and instead wind up banking on Social Security later in life. This is a huge mistake since Social Security is only designed to replace roughly 40% of the typical worker’s pre-retirement income. Most people, however, need at least 70% of their previous income to pay the bills once they stop working — and that assumes a relatively frugal lifestyle. If your goals include traveling the globe and joining a country club, you’ll need considerably more money in retirement.

That’s why your savings will ultimately play a huge role in dictating your retirement age. Say you create a retirement budget and determine you’ll need $2 million from independent savings to cover your expenses. If, come age 60, you have $2 million sitting in your 401(k), you can feel free to pull the trigger, assuming you’ve also accounted for the fact that you’ll need to pay for your own health plan until Medicare kicks in. On the other hand, if, come age 67, you’re still $100,000 short of your goal, it might pay to work a few more years and amass enough savings to support the lifestyle you really want.

Rule 2: Maximize your Social Security benefits

Your Social Security benefits are based upon your top 35 years of earnings, but you can raise or lower those benefits depending on when you first claim them. If you wait until full retirement age, you’ll collect what’s essentially your base benefit amount in full. But if you file earlier, you’ll lose a portion of your benefits — for life. Similarly, if you delay your benefits up until age…

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