How to Determine When You Can Retire

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Your retirement age is one of the most important factors in your retirement plan. It is also the factor you have the most control over. Other factors to consider are your eligibility for Social Security retirement benefits, your eligibility for other pension plans, how much you have in retirement savings, and your desired lifestyle. Depending on your situation, you may be able to retire earlier than you think.

How Much Money Will You Need

In order to determine when you can retire, you need to figure out how much money you will need for retirement. It is often recommended that you aim to replace approximately 70 percent of your pre-retirement income in retirement. This figure is calculated by adding up all your sources of retirement income including Social Security benefits, which typically account for about 40 percent of your retirement income. Consult your retirement plan to determine when retirement is feasible for you.

Have You Saved Enough?

Since Social Security benefits will not provide enough income to retire on alone, you should have retirement savings you can draw from to account for the additional income you’ll need in retirement. IRAs and 401(k)s are two popular types of retirement accounts investors use to save for retirement. You can use online calculators, such as those in the Resources section, to determine whether your savings will be enough for your retirement needs.

Social Security Eligibility

Under current rules, you do not become eligible for Social Security benefits until you reach at least 62 years of age. This assumes you have accumulated at least 40 Social Security credits, which equates to roughly 10 years of work. If you elect to retire before full retirement age and collect Social Security, you will receive a reduced benefit than you would otherwise be entitled to. For example, if you retire at age 62, your benefit will be reduced by approximately 25 percent from the level it would reach at your full retirement age, which for most people will be sometime in their 66th or 67th years. The benefit levels can increase even more if you wait until after your full retirement age to begin drawing on them -- the amount, in fact, does not stop rising until you hit age 70 1/2. Thus, if you are depending on Social Security for a large part of your retirement income, you may want to wait until you reach full retirement age or beyond to begin collecting benefits.

Eligibility for Other Retirement Benefits

Most retirement savings accounts prohibit you from making withdrawals before you reach a certain age. For example, you typically cannot withdraw money from your IRA before age 59 1/2 without incurring significant early distribution penalties. There are some exceptions to this rule that depend on personal circumstances. Additionally, most employers require you to work for a certain number of years and/or reach a certain age before you become eligible for employer-sponsored pension programs.

One key exception to the age 59 1/2 rule available through many individual retirement plans is the Substantially Equal Periodic Payment program. Under this program, you can take substantially equal annual distributions from your retirement account, penalty free, as long as the payments are high enough to empty your account by the time of your death or the death of your designated beneficiary, as predicted by IRS actuarial tables. Distributions under this program must be taken for a minimum of five years or until you reach age 59 1/2, whichever comes last.

Consult with a qualified financial advisor

Since everyone has a different retirement plan and retirement needs, you should consult with a qualified financial advisor when determining when you can retire. A financial advisor can help you understand rules and restrictions associated with your specific retirement plan and advise you as to your retirement options, including when you can retire.