Deciding What Age is Right for Your Retirement
As you go through your working life, especially during those days when your stress level reaches the maximum, you may start wishing for your retirement date to arrive in a hurry. In fact, you might think about retiring on the spot. Realistically, though, there are rules and regulations all of us must follow when we're considering retirement, especially if we want to receive our full retirement benefits from the federal government.
The rules regarding retirement age are different for tax friendly retirement investment accounts than they are for the federal government benefits for retirees. So, when you're trying to decide what age is right for your retirement, you have to take all of these potential benefits into account. You need to select an age where you can maximize the benefits across all of the accounts and programs for which you're entitled, from a plan through work to an online Roth IRA.
Retirement Age Restrictions
With a Roth IRA, you have significant limitations on when you can access the funds you've been accumulating in the account. If you decide you want to retire early, say at age 55, you cannot access your Roth IRA account funds without paying a penalty. The laws regarding Roth IRA accounts requires that no withdrawals are made from the funds until the account holder reaches age 59 1/2. Any funds that you withdraw before that age will require that you pay a 10% penalty on the funds being withdrawn, as well as pay your standard income tax rate on the funds.
This can be a significant penalty, especially for a Roth IRA, as the gains made in this type of retirement account are allowed to accumulate tax free. When you withdraw the funds after age 59 1/2, you won't have to pay taxes, even if the account has grown substantially since the time that you deposited the money. For that reason, it's really a bad idea to withdraw Roth IRA funds early, as the taxes and penalties you pay will really negate a large chunk of the financial gains you've made.
If your family encounters a financial emergency before you reach age 59 1/2, and you need to have access to these funds, the federal laws regarding Roth IRAs do allow for some withdrawals that can be made penalty free. The exceptions to the penalties include use of the Roth IRA funds to pay post-secondary education expenses, to pay a down payment for a first-time home purchase, or to pay certain medical expenses. However, you still are required to pay income taxes on the funds that you withdraw.
Unlike a traditional IRA, there are no restrictions on how long the funds can sit in the Roth IRA account without being accessed. Once you reach age 70 1/2 with a traditional IRA, you are required to begin taking regular withdrawals from your account. The money cannot sit and continue to grow tax free. However, with a Roth IRA, you are not required to make withdrawals at any particular point in your life. You can access the funds in the Roth IRA whenever you need them in your retirement years.
Federal Benefits During Retirement
Deciding what age is right for your retirement also will probably depend on the Social Security benefits you will be entitled to receive. With Social Security, you must not retire and file for benefits until age 62. If you continue to work until age 67, you'll receive the full amount of benefits for which a retiree qualifies. Those who retire between ages 62 and 67 will see a percentage reduction in the monthly benefits they receive, so consider your retirement age carefully.
Did you Know?
The Roth IRA is a retirement account that is funded with post-tax income. You pay taxes on your income this year as you would during any year and invest the funds in the Roth. Since taxes have been paid before investing you never pay income taxes on those funds in the future.
