Several ages shape retirement income decisions, including when you can claim Social Security, enroll in Medicare, take penalty-free withdrawals from retirement accounts, and when required withdrawals begin. Understanding each milestone can help you plan with more clarity. Here, we examine the timing considerations for each.
Social Security and Full Retirement Age
The earliest age to begin Social Security retirement benefits is 62. Claiming at 62 permanently reduces the monthly benefit compared with waiting until full retirement age.
Full retirement age is based on your birth year and ranges from 66 to 67. You can confirm yours with the Social Security Administration.
The "full retirement age" varies by birth year:
· For individuals born between 1943 and 1954, the full retirement age is 66
· For those born in 1955 or later, the age gradually increases to 67 for those born in 1960 or later
Delaying Social Security Benefits
Delaying benefits past full retirement age increases the monthly benefit for each year you wait, up to age 70. After 70, there is no additional increase for waiting.
Whether delaying makes sense depends on factors such as health, life expectancy, other income sources, and spousal benefits. If you plan to keep working while collecting benefits before full retirement age, an earnings test may also temporarily reduce your benefits.
Penalty-Free Retirement Account Withdrawals
Retirement accounts such as 401(k)s and IRAs offer tax advantages, but withdrawals taken too early may face penalties.
Generally, withdrawals can begin at age 59½ without an additional federal early-withdrawal tax. Withdrawals before that age are generally subject to a 10% additional tax, plus regular income taxes, unless an exception applies. Withdrawals may also be subject to Arizona state income tax.
One exception, often called the "rule of 55," may allow penalty-free distributions from your current employer's plan if you leave that job in or after the year you turn 55, or earlier for certain public safety employees. This exception does not apply to IRAs.
Required Minimum Distributions (RMDs)
Required minimum distributions generally begin in your 70s, with the starting age based on your birth year. RMDs apply to tax-deferred accounts such as traditional IRAs and 401(k)s. The amount is based on your account balance at the end of the prior year and an IRS life expectancy factor.
Roth IRAs do not require RMDs during the original owner's lifetime, and employees who are still working may be able to delay RMDs from their current employer's plan. Missing an RMD can result in a significant IRS excise tax on the amount not withdrawn, which may be reduced if corrected promptly.
Retirement Milestone FAQs
When can I start collecting Social Security?
As early as 62, with a permanently reduced benefit. Waiting until full retirement age provides your full benefit, and delaying up to age 70 increases it further.
When do I have to start taking RMDs?
RMDs generally begin in your 70s, depending on your birth year. The IRS publishes current RMD rules and life expectancy tables.
Understanding Social Security benefits eligibility and penalty-free retirement account withdrawals is an important part of retirement planning. Navigating these milestones can be complicated, and everyone's circumstances are unique. Therefore, it's beneficial to seek guidance from a financial professional.