The Magic Of Age 55
BOSTON (CBS) - Age 55 seems to be a magical number. It's the elusive goal! I co-authored The Complete Idiot's Guide to Retiring Early, and most workers under 40 we interviewed wanted to be retired at age 55. They thought they would be still young enough to travel or start another career. They also were sure they would not have any debt except possibly a mortgage.
But what we found in our research when writing the book was that even though 55 was the goal very few individuals could realize an early retirement. One obstacle was the lack of cheap health insurance for Medicare does not kick in until age 65. And many were still paying off school loans for the kids or their mortgage and the biggest reason was they simply had not saved enough to last them possibly another 35 or 40 years.
Normally you cannot get at your retirement money before age 59½ without incurring a 10% penalty. Ten percent is a lot of money to pay to use your own money. You cannot access your Social Security benefits until you see a big six in your birthday, earliest is 62 unless you are disabled or widowed.
If your 55th birthday has come and gone and you leave your company for whatever reason, don't take your money with you. If it's over $5,000, your company has to allow you to leave your money in the 401(k) plan. Don't even think of rolling it into an IRA. You want to be able to have access to it thru the 401(k) format for a couple of more years.
Why? Because you can qualify for penalty free withdrawals from the 401(k) plan. Here is the loophole. If you leave your job in the year you turn 55 or are older, but have not reached age 59½, you can have access to those dollars in your retirement plan penalty free. Now you will still owe taxes, but no penalty. This also works if you have a 403(b) plan.
Should you take the dollars out at 55 just because you can? Absolutely not! If you need those dollars to live on you have access to them without a 10% penalty.
If you do retire, whether formally or because you can't find another job at age 55, use the dollars in your non-retirement accounts first so the dollars in the retirement accounts have longer to work for you tax deferred. The longer you can leave them in the retirement plan where they can grow tax-deferred the more you will have.
