Checking Out Early: Could your retirement start sooner than you think?

An earlier retirement could be within your reach with proper planning and a willingness to make a few lifestyle changes. If you’re interested in retiring while still young enough to actually enjoy it, read on, there may be hope for you yet. First, let’s take a look at the realities of retiring in the USA.

The Magic of Age 65

Sixty-five used to be the standard age associated with retirement. Though probably no one really remembers why that number was pulled out of the air (average life expectancy was only 67 when this idea was conceived), once you hit that age, you were eligible to begin receiving back the funds that you and your employer deposited into the mysterious Social Security lock box with your name on it. In essence, you could trade your paycheck for a government check. For those of us born after 1937, retiring at 65 with full benefits is no longer the case. A graduated scale of eligibility now increases the age workers are eligible to receive full retirement benefits from age 65 for those born in or before 1937 to age 67 for workers born in 1960 or later (like me!).

Year Of Your Birth Age You Can Receive Full Social Security Benefits
1937 or earlier 65
1938 65 plus 2 months
1939 65 plus 4 months
1940 65 plus 6 months
1941 65 plus 8 months
1942 65 plus 10 months
1943-54 66
1955 66 plus 2 months
1956 66 plus 4 months
1957 66 plus 6 months
1958 66 plus 8 months
1959 66 plus 10 months
1960 or later 67
From the Social Security Administration

Collecting Early Social Security Benefits

If you wish, Social Security is offered at an earlier age, 62 … for a price. No only will you NOT receive full benefits, the benefits you DO receive by drawing your Social Security earlier are reduced along a similar scale.

Be aware that not only are your benefits reduced if you take this option, but so are your spouse’s benefits (if your spouse has earned little or no benefit on his or her own). Your spouse is eligible to receive 50% of your benefit amount, based on the amount you would receive at full retirement age. That 50% is then reduced by the amount listed in below.

If your spouse earned enough income to receive a benefit of his or her own that is larger than the amount provided under your benefits, the larger benefit applies.

Year Of Your Birth Your Approximate Reduction Your Spouse’s Reduction
1937 or earlier 20.00% 25.00%
1938 20.83% 25.83%
1939 21.67% 26.67%
1940 22.50% 27.50%
1941 23.33% 28.33%
1942 24.17% 29.17%
1943-54 25.00% 30.00%
1955 25.83% 30.83%
1956 26.67% 31.67%
1957 27.50% 32.50%
1958 28.33% 33.33%
1959 29.17% 34.17%
1960 or later 30.00% 35.00%
From the Social Security Administration

What if I have a 401(k) or 403(b)?

These are treated a little differently than you may think. With employer sponsored plans like these, age 62 is when you can access your money without a penalty for early withdrawal. The extra cash from Social Security could be enough to help you check out before you reach the traditional full retirement age of 65, 66, or 67 (depending on your age).

How about 59.5 or sooner as a retirement age?

I don’t know who came up with the 59.5 rule (seems quite arbitrary), but if you have a significant nest egg in your 401(k) or 403(b), instead of waiting for Social Security eligibility, you can check out a few years sooner by accepting “substantially equal distributions” from your employer’s plan for at least five years or until you turn 59.5 (whichever is longer). The downside? You could lower your eventual Social Security benefit by having too many years where you don’t earn an income. If you have a high-paying job, the last few years of your career are likely to represent your highest lifetime earnings and that’s an important factor in determining your eventual Social Security benefit.

Another option is to take on a part-time job, even in your semi-retirement. A little part-time job will put some cash in your pocket and may provide medical benefits (you will probably need them). One caveat: you cannot hold this job for more than ten years prior to becoming eligible for Social Security.

Want to check out even sooner?

You’ll need to be wealthy or very frugal with what funds you have at your disposal. If you’re rich, well, that’s easy. Why keep reading?

If you’re NOT wealthy, you’ll have to set some strong priorities on dining out, travel, gifts for grandchildren, and recreation. But, if relaxing on a picnic blanket with the wind whistling through the trees at your local park, spending time with family playing ball in the yard, or volunteering for charities you care about is more important to you than the trappings of a spending-like-crazy, go-go-go, travel-around-the-world retirement, you may be in better shape than you thought.

You may need to change the question you’re asking yourself from “how much do I need to retire?” to “how little do I need to retire?” Retiring early CAN be an option, but it will take careful planning and a willingness to alter your lifestyle.

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