When is the right time to retire? It’s a question that depends on your personal needs and circumstances. The National Bureau of Economic Research found that “retirement improves health and life satisfaction” but retirement age affects the quality of retirement.
The age at which you retire will affect your finances. Depending on your financial situation, determine the most reasonable retirement age so that you can enjoy retirement comfortably.
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- The rules surrounding Social Security benefits have designated 65 as the common retirement age.
- Men retire at an average age of 64.6 years, while women remain employed until the age of 62.3.
- Retirees over age 65 qualify for Medicare benefits.
- Depending on the year you were born, postponing getting Social Security until age 70 can make your monthly benefit up to 32% greater than it would be at full retirement age.
- As part of SECURE 2.0, Congress raised the age at which retirees are required to make minimum distributions to select retirement accounts. The required age is now 73 years old.
Retire at age 65 or earlier
By the time employees reach their fifties and early sixties, they often consider retirement. Men retire at an average age of 64.6 years, while women remain employed until the age of 62.3.
The original rules regarding Social Security benefits specified 65 as the retirement age when workers could receive unreduced retirement benefits. In 2023, the full Social Security retirement age is 66 for those born between 1943 and 1959, and 67 for those born in 1960 or later.
An individual’s retirement savings, health benefits, and Social Security usually determine the best time to stop working and varies by age.
Pension plans and IRAs
If you retire before age 65, some individuals, such as federal employees, can withdraw retirement plan savings at age 55. At age 59½, all employees can withdraw money from their qualified plans and IRAs without the IRS penalty for early withdrawal. Individuals who delay retirement must start taking required minimum distributions (RMDs) from retirement plans. Although the minimum required age for distribution was 72, the US Congress increased the age for an RMD to 73 as part of SECURE 2.0, a section of HR 2617.
It’s likely that you’ll need a large nest egg to supplement your Social Security funds, especially if you put it on hold too early and retire before age 65. The earlier you retire, the more you’ll need. According to Fidelity Investments, individuals retiring at age 65 should aim to save 12 times their salary before retirement and plan for an annual withdrawal rate throughout retirement of 4.2%.
Social security
Individuals who retire at age 65 or older and claim Social Security benefits will only receive 75% of the full amount and the spousal benefit is also reduced by 30% of the full retirement amount. Retiring at age 66-67 will get you a full Social Security benefit, depending on when you were born and age 70 is the latest age to begin receiving Social Security benefits.
Individuals can retire at age 65 or younger, collect Social Security retirement benefits, and work at the same time before their full Social Security retirement age. However, the benefits will be reduced if you earn more than the annual earnings limits.
Medical and health benefits
Retiring at age 65 allows individuals to be eligible for Medicare, otherwise early retirees will need to budget for out-of-pocket costs to purchase health insurance.
An individual who applied for health insurance in 2022 complied with the Affordable Care Act (ACA) paid an average of $585 per month in premiums (before any premium tax credits). By contrast, for 2023, the standard Medicare Part B premium is $164.90 per month, and it gets you covered at a relatively low deductible of $226 per year. Both numbers are lower compared to 2022.
To be well protected, consider prescription drug coverage (Medicare Part D) and possibly Medigap — or Medicare Advantage. The average premium for prescription drug coverage (Medicare Part D) will be $31.50 per month in 2023. Medicare Advantage (Part C) insurance premiums will average $18 per month in 2023.
Medigap is private insurance designed to supplement traditional Medicare and prescription drug coverage. Note that if you don’t sign up for prescription drug coverage when you retire at age 65 with Medicare, you can pay a higher penalty rate for it when you sign up for the rest of your life — unless you’re covered by your employer’s drug plan.
Financial experts recommend that your retirement income should be about 80% of your final annual earnings before retirement.
Retire after age 65: From 66 to 70
For many, your upper 60s are the golden mean for retirement timing—you’re old enough to have a good financial back-up and young enough to enjoy your work-free years. The fact that you get your full Social Security payments at ages 66 to 67 can make a big difference, especially if you’re relatively healthy and likely to have an average or longer-than-average retirement.
Waiting also gives you a few extra years to shore up your tax-advantaged investment accounts. Investors who are at least 50 years old can make an annual compensation contribution to a 401(k) or IRA. For 2023, those age 50 or older can contribute $7,500 to a traditional IRA or Roth IRA, up from $7,000 in 2022. If you’re using your 401(k) to save for retirement, you can defer up to $30,000 of your paycheck in 2022 after you turn 50.
Also, waiting until you’re 65 means you’re eligible for Medicare, which is usually a fraction of the cost of individual seniors’ insurance plans.
The normal retirement age — the age at which you receive your full Social Security benefits — gradually increases to 67 for those born in 1960 or later.
Late retirement: age 70 and over
If you love what you do for a living, the advantages of working into your 70s are plain to see. For everyone else, a prolonged career might seem like the last thing they ever want.
However, consider the advantages. First, you will have more time to accumulate your savings. You will also benefit from the highest possible Social Security compensation. Benefits increase on a pro rata basis until you reach age 70 when it is 132% of the full amount if you were born between 1943 and 1954. And if you were born in 1960 or later, your benefits will increase by 124%.
The bottom line is if you plan well, you’ll have more money to do the things you really love, and you’ll have fewer worries about outgrowing your assets. And if you stay healthy, you’ll still have many years to enjoy the freedom of retirement.
Of course, delaying retirement isn’t always an option, for several reasons. Research published in 2021 by Northwestern Mutual found, for example, that the economic impact of the COVID-19 pandemic has changed the retirement plans of many Americans. Almost a quarter (24%) plan to retire later than previously expected.
At what early retirement age?
Leaving the workforce before the age of 65 is usually considered an early retirement.
You can start collecting Social Security retirement benefits as early as age 62, but you won’t get the full benefits. For anyone born between 1943 and 1954, for example, full benefits don’t start until age 66, and for those born after that, the age for full benefits is slightly older.
How old do you have to be to retire?
The full retirement age, or the age you must be to receive full Social Security benefits, is 66 years and 2 months for those born in 1955 and will gradually rise to 67 for those born in 1960 or later. How old do you have to be to retire comfortably depends on the lifestyle you want and how much you have saved. The earlier you retire, the larger your nest egg you will need.
What is the average retirement age in the United States?
The average retirement age is different for women and men. On average, women retire at 62.3 years and men at 64.6 years.
bottom line
Many seniors can’t wait for the day they finally call the end of their career and retirement. However, constantly worrying about finances is not exactly how you will spend your later years. This is why it is important to think about when you should actually retire rather than focusing on the age at which you are eligible to collect retirement benefits. Before making a decision, make sure you have the resources to make the most of this new phase of life.