When Should You Retire
As the examples and discussion illustrate, there are an abundance of factors that go into the questions of whether you can retire with $500,000 in savings or how much you need to retire. Not the least of which is, What does retirement mean to you?
Actually, if you hate your job, maybe all you need is a job you like more. Or, if youre nearing age 50, feel like youve put in your hours and have built up a decent portfolio, then retiring at 55 with $500k is definitely possible.
As with any life choice, there are always tradeoffs, and very few people and have it all. If retirement means living solely off of your investments and Social Security benefits then youll need a much larger portfolio than if youre seeking a simple life on the coast of Texas while you work part-time at the Home Depot. Or maybe a low-fee Annuity would help stabilize your retirement income.
Whatever your future holds, there are many online calculators to help you map out your retirement future.
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Should You Use The Rule Of 55
Determining whether or not to take early withdrawals under the rule of 55 will depend on your unique financial situation. Youll want to have a clear understanding of your plans rules, how much youd need to withdraw and what your annual expenses will likely be during your early retirement years. Figuring out those issues should help you know if taking an early withdrawal is the right decision for you.
Here are some situations where its likely taking early withdrawals would not be the right move.
- If it would push you to a higher tax bracket. The amount of your income for the year in which you begin the withdrawal plus the early withdrawal might put you into a higher marginal tax bracket.
- If youre required to take a lump sum. Your plan might require a one-time lump sum withdrawal, which may force you to take more money than you want and subject you to ordinary income tax liability. These funds will no longer be available as a source of tax-advantaged retirement income.
- If youre younger than 55. You might want to leave your current employer before a year in which you turn 55 and start taking withdrawals at age 55. Note this is NOT allowed and you will be assessed the 10 percent early withdrawal penalty.
How Old Do You Have To Be To Retire
Full retirement age, or the age you need to be to collect full Social Security benefits, is 66 years and two months for those born in 1955 and will gradually increase to 67 for those born in 1960 or after. How old you have to be to retire comfortably depends on the lifestyle you want to have and how much you have saved. The earlier you retire, the larger the nest egg you will need.
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Think Strategically About Pension And Social Security Benefits
For most retirees, Social Security and pensions are the two primary sources of regular income in retirement. You usually can collect these payments earlyat age 62 for Social Security and sometimes as early as age 55 with a pension. However, taking benefits early will mean that you get smaller monthly benefits for the rest of your life. That can matter to your bottom line, even if you expect Social Security to be merely the icing on your retirement cake.
On the Social Security website, you can find a projection of what your benefits would be if you were pushed to claim them several years early. But if you’re part of a two-income couple, you may want to make an appointment at a Social Security office or with a financial professional to weigh the potential options.
For example, when you die, your spouse is eligible to receive your monthly benefit if it’s higher than his or her own. But if you claim your benefits early, thus receiving a reduced amount, you’re likewise limiting your spouse’s potential survivor benefit.
If you have a pension, your employer’s pension administrator can help estimate your monthly pension payments at various ages. Once you have these estimates, you’ll have a good idea of how much monthly income you can count on at any given point in time.
Number 2 The Taxable Account

Another source of money to bridge your early retirement gap is your taxable account.
This is likely the first account that you should draw down in retirement. It has the least tax benefit and has the most flexibility in terms of access. You simply take the money out that you put in, and pay your long-term capital gains taxes . These taxes, which are usually 15-20%, are often substantially less than what you were paying in your peak earning years.
In fact, one reason I created this post is that Ive read that some people actually stop putting money into their 401K/403B and, instead, put it into a taxable account so that they can access it more easily. They think this is the only option in early retirement.
As youll read below, this is not the case!
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Why You Can Trust Bankrate
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our reporters and editors focus on the points consumers care about most how to save for retirement, understanding the types of accounts, how to choose investments and more so you can feel confident when planning for your future.
Your Jobs Retirement Age
Depending on what you do for a living, you might qualify for retirement benefits when you reach a certain ageor a combination of age plus years of employment. For example, you might reach a Golden 80 when you are 60 years old and youve worked for 20 years. If youre in this position, youre one of the fortunate few who still benefits from a pension plan.
Every employer is different, so you need 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 the resources and dont feel like continuing to work, that might be an attractive option.
If you get healthcare from your employer, its also important to know about potential retiree health insurance options. Paying for healthcare costs after retirement may be surprisingly expensive, and you need to explore all of the alternatives.
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Retirement Age And Claiming Your Pension
Although you can retire at any age, you can only claim your State Pension when you reach State Pension age.
For workplace or personal pensions, you need to check with each scheme provider the earliest age you can claim pension benefits. If you’re retiring because of ill-health you may be able to take your benefits before the set age.
If you have serious ill-health and your life expectancy is less than a year you can retire at any age. You can take up to 100 per cent of your pension fund as a tax-free lump sum. If you’re married or have a civil partner, up to 50 per cent of the pension fund may be retained by the scheme. This will be used to provide for a survivor’s pension.
How To Retire At 5: Projecting Your Income Potential
Start your earlier retirement planning effort by projecting how much income you can generate in retirement. By beginning here, youll have an idea of what kinds of decisions you can make regarding your retirement. For instance, lets say you have family in New Jersey that youd like to retire near. New Jersey is a notoriously high-cost state, so it would be helpful to understand your income before you choose to move there.
Here are the major sources of income you might use in retirement:
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What Matters Most Is Being Prepared Financially
When is the right time to retire? Its a question that depends on your personal needs and circumstancesnot to mention your plans for what you’ll do instead. We’ve all had days when we’re prepared to hand our boss a resignation letter and lead the good life of a retiree. While leaving the workforce early might sound like paradise, it can be a big mistake if you’re not financially ready to live without a paycheck. Here are some of the pros and cons of quitting your job at different ages.
Defined Contribution Pension Schemes
These are also known as money purchase schemes. If you’re a member of a personal pension, stakeholder pension or workplace money purchase scheme, the main points to remember are that
- you’ve had fewer years to pay in, so your pension fund will be smaller
- your pension fund will need to provide you with an income over a longer period, so the pension you get will be smaller
If you’re retiring early due to an illness that’s likely to effect your life expectancy, then some providers may boost your pension.
Example
If you started paying into your pension at age 35 with a life expectancy of 85 then:
- if you retire at 55 the fund built up over 20 years must last 30 years
- if you retire at 65 the fund built up over 30 years must last 20 years
If you’re retiring early due to an illness that’s likely to affect your life expectancy, then some providers may boost your pension.
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Retirement Income Calculation Rules Of Thumb
When it comes to income required in retirement in Canada, there are several rules of thumb or schools of thought out there. If you are looking for a definite answer to put your mind at rest, you may be disappointed.
In fact, the one thing everyone readily agrees to is that when it comes to retirement income, it is not black and white and there is no 100% consensus.
Popular rules of thumb include:
Basics: Whats The Problem

When we make all of our brilliant plans for early retirement, we often think about the freedom it will provide. Sometimes, however, we fail to think about the specifics.
Most people will use the 25X rule to determine how much is enough to retire, though I follow a hybrid model of financial independence. For the math purists, if your annual expenses come out to $100,000 post tax each year then you likely need $2.5 million to be financially independent.
If you plan to retire early, you may want to be more conservative and multiple your annual expenses by 30, or $3 million in this example. Then you could draw down 3.33% of this nest egg each year to provide you $100,000. That is likely to last a very long time based on the Trinity Study even for an early retiree.
However, this math gets a bit dodgy when the majority of our savings is stuck inside a retirement account that we cannot use until age 59.5 lest we receive a 10% penalty on anything we take out.
The problem is this: How do we bridge the gap from early retirement to age 59.5?
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How To Retire At 5: Major Considerations
Retiring at age 59 isnt like retiring at other ages. Particularly because of Social Security, its often more challenging than retiring at 62 or older. Of course, each persons own situation is unique to what feels like a near-impossibility to one can seem like a breeze to another. Here are some major factors to consider:
Consult A Financial Professional
As you near retirement age, there is a lot for you to think about. In the coming years, you are going to be making a lot of major decisions that will affect you for the rest of your life. In times like these, its best to consult with an experienced financial professional.
Financial professionals help people evaluate their goals, analyze their options and come to decisions that they will be happy to live with for a lifetime.
This information is designed to provide general information on the subjects covered it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Strong Tower Associates and its affiliates do not give legal or tax advice. You are encouraged to consult your tax adviser or attorney.
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Lets Run Some Numbers
How much money would the couple realistically need each year to maintain their current lifestyle ? And where would they source that money?
Lets guesstimate.
Their current expenses minus the cost of payroll taxes from Carols real estate company, which would, presumably, be much lower once she winds down the business in retirement are roughly $4,700 per month.
No longer receiving health benefits through James employer, the family would need to secure their own medical insurance until qualifying for Medicare at age 65. Until then, they could easily see their medical expenses jump by a factor of two maybe more.
That means that theyd need about $6,000 per month to keep status quoat least until their 13-year-old daughter is headed to college, at which point their expenses may creep higher. However, James said theyre working on a plan to mitigate those costs by encouraging their daughter to earn high school Advanced Placement credits, which can be applied toward college credits. The family estimates providing $10,000 per year for their daughters schooling, while shed cover the rest.
Their current cash savings and brokerage account investments total $271,000. After taxes, I figure money could stretch about three and a half years. James still wouldnt be eligible to withdraw from his 401 at that point.
Early Retirement And Personal Or Workplace Pensions
Retiring early may also affect your personal or company pension. The rules for personal and company pensions vary, depending on who provides them. You will need to check your personal or company pension to see how early retirement might affect your situation.
When looking at workplace pensions, remember that:
- your workplace scheme may not allow you to take your pension before the normal retirement age of the scheme
- if you retire early through ill-health there may be special terms in the scheme rules that allow for the pension to be enhanced
- if you’re made redundant with a pension, you could delay drawing it and let it build up
- if you are going to work again, check the rules about transferring your old pension to a new employer’s pension scheme
- if you’ve had several jobs, you’ll need details of all your pension rights
These are complicated points and you may benefit from getting independent advice.
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How To Withdraw From Your 401 Before 595 And Avoid Penalties
Mr. Johnson has had the luxury of saving for retirement and, in his mind, saving more than enough to live the lifestyle he and his wife have always dreamed of.
Mr. Johnson has had the luxury of saving for retirement and, in his mind, saving more than enough to live the lifestyle he and his wife have always dreamed of. Their dreams of European vacations, cruises with the grandchildren, and driving cross-country in an RV all seem to be within arms reach. Theres only one problem: the majority of Mr. Johnsons retirement savings are in his companys 401 plan, and Mr. Johnson is only 55 years old. Sure, Mr. Johnson can roll the money out from the 401 and do a 72T , but the specific amount the IRS would require at Mr. Johnsons age isnt enough for the retirement hes planned for. Mr. Johnson is thinking of taking the 10% IRS penalty since this is the only way to access his saved money or is it?
Did you know that the Internal Revenue Service has a rule called the Rule of 55, which states that an individual who retires from, quits, or is laid off from their job at age 55 can withdraw from their 401 or 403 plan and avoid the 10% early withdrawal penalty free?
This content was brought to you by Impact PartnersVoice. Jared Lomeo is an insurance professional in the state of Georgia. This content is for informational purposes and should not be construed as tax advice. DT430034-0219
Can You Afford To Retire Early
You’ve got a sense of your ideal retirement age. And you’ve probably made certain plans based on that timeline. But what if you’re forced to retire sooner than you expect?
Early retirement is nothing new, but it’s clear how much the COVID-19 pandemic has affected an aging workforce. Whether due to downsizing, objections to vaccine mandates, concerns about exposure risks, other health issues, or the desire for more leisure time, the retired population grew by 3.5 million over the past two yearscompared to an annual average of 1 million between 2008 and 2019according to the Pew Research Center.1 At the same time, a survey conducted by the National Institute on Retirement Security revealed that more than half of Americans are concerned that the COVID-19 pandemic has impacted their ability to achieve a secure retirement.2
There’s no need to panic, but those numbers make one thing clear, says Rob Williams, managing director of financial planning, retirement income, and wealth management for the Schwab Center for Financial Research. Flexible and personalized financial planning that addresses how you’d cope if you had to retire early can help you make the best use of all your resources.
Here are six steps to follow. We’ll use as an example a person who’s seeing if they could retire five years early, but the steps remain the same regardless of your individual time frame.
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