Are You Willing and Able to Retire at Age 55? Let’s Run the Numbers

Updated on May 11th, 2022
Retire at Age 55?

Key Takeaways

  1. You can retire early, although you won’t be able to receive Social Security retirement benefits until at least age 62.
  2. 401(k) holders can withdraw money from their 401(k) at age 55 without penalty, only if they are fired, quit their job, or are laid off.
  3. Set retirement goals and prepare for the retirement you want to live. Retirement looks different for everyone, which means different costs.

What happens when you reach 55? For many, this watershed year marks their buyout or downsizing of a company — meaning retirement. But, Postpandemically, could you survive?

If you are looking to retire early from the workforce, this is a question you may be asking. The traditional retirement age is 65 for most people. However, early retirement can give you more time to pursue hobbies and explore new interests.

It’s vital to have a solid financial foundation before you leave your job. Calculating the numbers can help you decide if retirement at 55 is feasible. A financial advisor will help you to estimate when you might be ready to retire.

At 55, can I legally retire?

The retirement rule book doesn’t say you can’t get out of work at 55. Some members of the FIRE (financial independence and retirement early) movement plan to retire at 40. If you want to retire in your 50s, it is perfectly legal.

It’s important to remember that 55 is not the average age for retirement—Social Security’s normal retirement age is 66 and four months — or 67. The higher age means you have to wait until then to start receiving Social Security benefits. As a result, some seniors might choose to work indefinitely or delay their retirement until they are 70.

 

Can I retire at 55 and collect Social Security?

Social security retirement benefits are an essential piece of your financial puzzle. These benefits will provide you with monthly income, in addition to income from qualified retirement accounts, taxable investments accounts, or annuities.

Can you retire at 55 to receive Social Security? Unfortunately, the answer is no. The earliest age you can begin receiving Social Security retirement benefits is 62. There is a catch. You will reduce your benefit amount if you take Social Security benefits before reaching your new standard retirement age.

You may also have your benefits reduced if you begin taking them after 62 but still work in some capacity. For example, let’s say that you are 55 and want to retire from your full-time job and do consult work. You could be eligible for Social Security retirement benefits once you reach 62. However, your earnings from consulting work may affect the amount you receive.

Social security has a flip side. You can get a higher benefit amount if you wait to claim it. For example, if you wait until you turn 70 to claim Social Security, you could receive a monthly payment equal to 132% of your regular benefit amount.

If you are asking yourself, “Can I retire at 55?” It’s essential that you know that Social Security won’t be your source of income for the next few years. You should also know that these benefits will be lower if you take them as soon as possible, rather than waiting until you reach full retirement age.

Divide Retirement Accounts

Can I retire at 55 and withdraw money from a 401k or IRA?

You can save money in a 401(k) or Individual Retirement Account to help you fund your early retirement goals. However, you might encounter a problem if you want to withdraw money from these accounts before the age of 59 1/2.

The Rule, age 55, is the first. This IRS rule states that if you are fired, laid off, or quit your job within the year you turn 55; you can withdraw money from either your current 401k or your 403(b without penalty.

You can’t tap money from 401(k) plans that you have at your former employer without a penalty. This can be avoided by rolling your old 401k or 403b into your current one before retiring.

Unless you are eligible for some exceptions, you can’t withdraw money from a traditional IRA before you turn 59 1/2. You can withdraw your original contributions tax-free and without penalty with a Roth IRA. To do this, your

Roth IRA account must be open for at least five consecutive years. If you are not eligible for an exception, you will need to wait until you turn 59 1/2 before you can withdraw your earnings.

Investments and savings

 

You will need to have investments and savings that you cannot tap into with these plans. An online brokerage account might be a good option. Remember that capital gains tax can be triggered by selling investments at a profit.

A brokerage account could be supplemented with regular savings, money market accounts, or cash value insurance.

Annuities provide a steady income for early retirement. However, this type of insurance contract requires you to pay a premium. You can then receive regular monthly payments that start at a time you choose.

An annuity might be something you consider if you need a backup source for income until you are eligible to withdraw money from qualifying accounts or claim Social Security benefits.

What amount of money do I need to retire at 55?

It is different to plan to retire at 55 than to retire at 65. This is because you will need more money to support yourself through old age. Your money must last for 25 years if you plan to retire at 65. If you are retiring at 55, however, your savings must be able to last for 35 years. This assumes that you are healthy and won’t need long-term care.

If this happens, it could severely drain your assets.

How much money will you need to retire at age 55? It all depends on what kind of lifestyle you choose. You may be able to live a more minimalist lifestyle, which allows you to reduce your expenses. On the other hand, if your early retirement plans involve traveling, buying a house, or starting a company, then you might need to have a bigger nest egg.

Consider these things when planning your budget for retirement at 55

  1. Current monthly expenses
  2. How much would your expenses be if you downsize early?
  3. What is your retirement age?
  4. How much income do you have coming in before you can receive Social Security benefits? You will also be eligible to withdraw penalty-free from a 401k or IRA.
  5. What amount have you saved to date outside of an IRA or 401(k)?
  6. How long do you need to save and invest before reaching age 55?

Numbers and goals

It’s easier to pinpoint a number or goal if you take the time to answer these questions. For example, a person might be asking themselves whether it is possible to retire at 55 with $1 million or $500,000. One may even think $2 million is closer.

You can find the answer by following some simple rules. A standard piece of advice on retirement planning is to have seven times your annual income saved before age 55. For example, if you earn $100,000 per year, $700,000.00 would be required by your 55th birthday.

However, that’s just one part of the equation. It is also essential to determine how long $700,000.000 will last, and how much you might need to save based on your retirement budget.

Max Palmer

Max Palmer

I'm Max and I love helping businesses we work with to expand their businesses online. I help with invoicing, time tracking and overall business needs for business owners. If you need help contact me today.

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