1010 B Street,
September 23, 2020
Suppose you suddenly had to, or the opportunity presented itself. This prospect would not call for disregarding your carefully considered retirement strategy, but it would create some challenges.
Social Security, Medicare, and popular retirement accounts were all created with the assumption that Americans would need retirement benefits and sources of retirement income, sometime in their 60s. A typical 55-year-old has ten years to wait to enroll in Medicare and is seven years away from the chance to claim Social Security. Withdrawing money from a qualified retirement plan before age 59½ often triggers a 10% early-withdrawal penalty. (The CARES Act waives the 10% penalty in 2020 in certain situations.) So, one challenge is to generate income in your 50s from sources apart from retirement plan distributions and Social Security, perhaps using accounts that allow you penalty-free access to assets. There is also a big-picture consideration that comes into play regarding your income if you retire before 60. It means you will have saved for retirement for comparatively fewer years than some of your peers have, and you may end up paying for more years of retirement than they will. The other big challenge is to stay healthy and find and sustain health insurance coverage (remember, COBRA coverage usually lasts no more than 18 months if you retire early). Should you retire at 55 by choice or chance, the circumstance calls for discussion, and a review of your income and insurance options.1
Under the SECURE Act, once you reach age 72, you must begin taking required minimum distributions from your retirement plans in most circumstances. Withdrawals from your 401(k) or other defined-contribution plans would be taxed as ordinary income.