Retirement at Age 55

It is possible to retire at age 55 but to do so you will have to have a source of income other than a normal retirement plan. The reason for this is that persons who retire at that age will not be able to take advantage of normal retirement benefits.

 
Taxes and Early Retirement

The first thing anyone who retires at 55 should realize is that you will have to pay extra to access funds in annuities and most tax-deferred retirement plans. Under current law, most persons who withdraw funds from such plans before age 59½ will be charged a 10% penalty in addition to their normal income tax on those funds. This means a man who withdrew $10,000 and normally paid a 30% tax rate would pay 40%. Something else that persons should realize is that individuals will still have to pay their normal tax on that money because it is tax deferred.

 

There are two kinds of retirement account that a person under 59 could take funds out of with no penalty. The first is a Roth IRA or 401k in which taxes are paid when contributions are made but no tax is due later on. Once funds are in a Roth they are tax free. The other is a Tax Sheltered Annuity which is available to some government employees such as school teachers. Persons can withdraw funds from a TSA with no tax penalty.

 

A person who retires at 55 should plan on using non retirement funds, a pension or money in a Roth or a TSA until age 59½ or later. Any annuity he has should be set up to start paying at a later age in order to avoid the tax penalties. It would be a good idea for a person who retired at 55 to put a large amount of money into annuities to ensure future income.

 

No Social Security or Medicare

Something else that a person who retires at 55 should realize is that she would not be able to receive normal Social Security or Medicare benefits for several years. Currently the earliest age a person can receive Social Security retirement benefits at is 62. The age at which you can start receiving Medicare is 65.

 

That means you will have to have a source of income to make up for Social Security and you will have to pay the full amount for your own health insurance until age 65. Anybody think of retiring before those ages should consider this carefully because health insurance costs are rising.

 

Pensions and Other Benefits and Retirement at 55

Anybody who plans to retire at 55 because they have a pension or health insurance from a job should ask themselves how reliable that benefit is. There is no federal guarantee for health insurance for retirement so if the plan collapses it could disappear. The federal government does guarantee pensions through the Pension Benefit Guarantee Corporation but persons whose plans are taken over by this agency can receive smaller benefits.

 

Anybody who retires at 55 should definitely have other sources of income besides pensions available. Without them, a person could soon find himself back in the job market with no savings.