When you’re creating your “money design”, there are a lot of options for income streams available to you at retirement. Depending on how early you plan to retire, it will be very important to know what the minimum age is you can start withdrawing your funds. The rules may influence the number of options on the table as well as have important legal and penalty implications.
Using irs.gov and several other websites, the following chart is an overlay of all the popular traditional retirement plans and when they can become available.
Age 60 – 70:
Unless you have significant income or disability issues, you won’t be able to start your Social Security until as early as age 62 or as late as age 70. Full or normal retirement age is 67 for anyone born after 1960. The earlier you start your benefits, the less you will receive each month for the rest of your life. One unfortunate fact about Social Security (according to the last statement I received in the mail around my birthday) is that by the year 2037 the fund will only be able to payout about 76 cents for every $1 you are entitled.
This is the magic age where most of your retirement streams start to become available. This includes your 401k, 403b, IRA’s, and any annuities you may own.
If you plan to retire sooner than 59-1/2, there are exceptions to getting the money from your 401k and 403b plans sooner. One of them is to stop working by age 55 (but not before the year you turn 55). Also, the principal contributions to your Roth IRA are always available (5 years after they are deposited into your account).
Before Age 55:
To get your money sooner than age 55, you will need to apply a little known IRS rule called a 72(t) “equally substantial distribution”. A 72(t) says allows you bypass the 10% penalty tax as long as you start taking the withdrawals for a minimum of 5-years or until you reach age 59-1/2, whichever is longer.
In addition, if you have pension as part of your job, it may also be ready for withdrawal. This will greatly depend upon when you started and what the rules are. Usually most pensions require a service term of about 30 years. However, they often allow a “buy-in” where the employee can buy 5 years of credit and retire in as few as 25 years. So if you started your job at age 22 and bought 5 years of credit, it may be possible to start receiving your pension income as soon as age 47.
* A Word of Caution:
For each of these options, please prioritize “not running out of money” over “getting your money out as soon as possible”. As you know, once the money is gone, it’s gone. Be sure to use conservative growth assumptions and error on the side of saving more than you think.
Still Not Satisfied?
If you want to retire even earlier than your 50’s without destroying your nest egg, your only remaining viable option is to start supplementing your income with passive income streams. Passive income streams are revenue that you earn using means that require very little involvement from yourself. Common types of passive income streams include such strategies as rental income, dividend payments, business ownership revenue, Internet sales, etc. Gather enough of these streams and you can replace the income from your paycheck with the proceeds from each of these streams. Click here to see my collection of ideas for passive income.