The retirement age in the U.S. — the age at which you become eligible for retirement benefits — is 62 for Social Security and 59½ for penalty-free withdrawals from 401(k) and IRA accounts.
That was easy, right? Well, not so fast.
Like many things related to retirement, understanding your eligibility for benefits and deciding when it makes sense to start claiming them isn’t quite that simple. But don’t worry; in this article, we’ll help you figure out your retirement age and how to maximize your benefits to ensure as comfortable a retirement as possible.
When can you start receiving Social Security benefits?
You’re eligible for your full Social Security benefit (your primary insurance amount) once you reach full retirement age. If you were born in 1960 or later, your full retirement age is 67. You can start taking Social Security retirement benefits as early as 62, though you’ll receive less than if you wait longer.
In fact, every year you delay past 62 boosts your monthly benefit by 8% thanks to delayed retirement credits — up until age 70, at which point you’ll receive your maximum Social Security benefit.
Taking Social Security at 70 increases your monthly benefit by about 77% compared to starting at 62. Of course, you’ll get fewer checks over your lifetime. Whether that tradeoff makes sense for you depends on a host of factors, such as your health, the kind of work you do, and your spouse’s situation if you’re married.
When can you start withdrawing from your 401(k)?
To make a penalty-free withdrawal from your 401(k) — or 403(b) if you work for a tax-exempt organization — you’ll typically need to wait until the age of 59½ to avoid a 10% early withdrawal penalty. There are exceptions, including if you become permanently disabled. You should check with your plan administrator if you become disabled.
Early withdrawal rules for a 401(k)
If you have a traditional 401(k): Withdrawals are taxable as ordinary income whether you’re taking an early withdrawal or waiting until you’re 59½. The 10% early withdrawal penalty will typically apply for your entire distribution, with a few exceptions.
If you have a Roth 401(k): Your contributions don’t lower your taxable income for the current year, but your withdrawals can be tax-free if you wait until age 59½ and the account is at least five years old. When you withdraw Roth 401(k) money early, you’ll pay income tax and a 10% penalty on only the amount you earned on your contributions.
For example, suppose you have a Roth 401(k) balance of $10,000, and you made $8,000 in contributions while the other $2,000 is attributed to earnings. If you took a $5,000 early distribution, the 80% (or $4,000) that’s attributed to your contributions would be tax- and penalty-free. But you’d owe taxes and a 10% penalty on the remaining 20% (or $1,000) because it’s considered earnings.
Rule of 55
You may be able to take penalty-free 401(k) distributions thanks to an IRS provision known as the rule of 55. If you lose your job or quit working in the calendar year you turn 55 or later, you can withdraw money from the 401(k) to which you are currently contributing without paying the 10% early withdrawal penalty. However, you’ll still pay an early withdrawal penalty if you take distributions from previous employers’ plans before you reach 59½.
Note that if you’re a public safety worker — such as a police officer, firefighter, or air traffic controller — you can access your most recent workplace account penalty-free if you leave your job during the calendar year you turn 50 rather than 55.
Required minimum distributions for a 401(k)
Required minimum distributions (RMDs) are withdrawals from 401(k)s and other retirement accounts that you have to make when you turn 73. The RMD age will increase to 75 in 2033.
In 2023, RMDs are required for both traditional and Roth 401(k) accounts, but starting in 2024 Roth 401(k) account holders will no longer have to make RMDs.
When can you start withdrawing from your IRA?
The retirement age for IRA withdrawals is usually 59½. As with a 401(k), there are some exceptions.
Early withdrawal rules for an IRA
If you have a traditional IRA: Your contributions may be deductible on your taxes, depending on your income and whether you or your spouse have a workplace retirement plan. If you have a retirement plan at work, you can only deduct your full traditional IRA contribution if you earn less than $77,000 if you’re single or $123,000 if you’re married and file a joint tax return in 2024.
You’ll owe ordinary income taxes on any distributions, whether you’re taking this money early or you’ve reached 59½. A 10% early withdrawal penalty usually applies when you take out your money before retirement age.
If you have a Roth IRA: Withdrawals are tax- and penalty-free once you’re at least 59½ and you’ve had the account for five years. However, you can withdraw the contributions (but not the earnings) any time without paying taxes or a penalty. Any withdrawals are treated as contributions first, which is a key difference between Roth IRAs and Roth 401(k)s.
Suppose you had a $10,000 Roth IRA balance consisting of $8,000 worth of contributions and $2,000 of earnings. If you took a $5,000 early distribution, you wouldn’t owe any taxes or penalties because the IRS would consider the entire withdrawal as contributions only. But if you took a $9,000 early withdrawal, you’d owe taxes and a 10% penalty on the $1,000 worth of earnings you’re taking out.
Required minimum distributions for an IRA
Traditional IRAs have required minimum distributions, while Roth IRAs are never subject to RMDs during your lifetime.
RMD rules for 401(k)s also apply to traditional IRAs. You’ll need to begin required minimum distributions the year you turn 73 if you turn 72 in 2023 or later. The RMD age will increase to 75 by 2033.
Other sources of income for retirement
Here are some additional sources of income beyond Social Security and your 401(k) and IRA to consider in your retirement planning:
- Pensions: Traditional pensions that guarantee a retirement benefit are less common than they used to be, especially for private-sector workers. But if you earned a pension at your job, you may qualify for benefits based on your years of service, regardless of your age.
- Investments from a taxable account: You can withdraw money from a brokerage account at any time without penalty. You could instead keep your investments and use dividend income to subsidize your retirement. Or you could sell your investments and use your gains for income. Though there are no tax breaks associated with a standard brokerage account, your profits are taxed at favorable long-term capital gains tax rates if you hold them for more than a year.
- Home equity: If you have significant equity in your home or you own it outright, you could sell it and move to a smaller residence, then use your profits as retirement income.
- Rental property: Buying residential real estate to earn rental income is a popular way to supplement retirement income. If being a landlord isn’t appealing, you could hire a management company to handle day-to-day tasks.
Finally, retiring doesn’t necessarily mean you never work again. Plenty of people call it quits from their full-time job but continue to work in retirement on a part-time basis or by doing contract or freelance work.
If you diversify your sources of income and you’re open to easing out of the workforce instead of calling it quits altogether, you’ll have more flexibility to retire on your terms.