Pension Rules for Early Retirement

The U.S. pension system provides workers with an opportunity to save money for retirement. Pension plans may be administered by public, private and government employees. In an article for MSN Money, Liz Pulliam Weston states that a quality pension plan will replace 40 to 45 percent of a worker's average salary during retirement. However, some workers--whether through personal choice or because of an employer's directive--retire early. Under either circumstance, you can collect your pension early with certain provisions.

Reduced Pensions

According to 1199 SEIU Funds, a pension-provider based in New York City, workers may receive an "Early Retirement Pension" between the ages of 55 and 64. However, "your benefits will be reduced 6% for each full year (0.5% for each month) that you are younger than 65." Since age 65 is the required age for retirement, your reduced pension benefits will cease and you will collect the remainder of your balance without these reductions. You will also be eligible for Social Security payments at this time.

Early Retirement Because of Ill Health

If you are forced to retire because of health reasons, you may take up to 25 percent of your pension as a one-time lump sum payment (depending on qualifying conditions). These conditions include meeting minimum earnings, full-time employment and minimum service requirements. Early retirement will cause your pension payments to be lower; however, you may take out an annuity with an insurance company to increase your pension payments if you are expecting death before your life expectancy. In severe cases, you may be able to receive your pension as one lump sum payment. Also, if your pension fund is less than the lifetime allowance (maximum value of the fund) you are exempt from paying taxes on it.

Part-Time Work

Legally, you cannot collect a pension while still working in related employment. Related employment is considered working more than 40 hours per month, working in a field in which you use the same skills as your previous employment or work in the health care or human service field. If your work is not considered related, you may collect up to 25 percent of your pension as a lump sum payment. The remaining balance would be paid monthly.