Making Critical Retirement Choices

Whether you’re just beginning your career or nearing its end, it’s never too early to think about what you want retirement to look like. The sooner you make a plan and put it into action, the more choices you’ll have in your golden years.

For most people, putting together a retirement plan involves many choices, some of them quite complex. The right strategy depends on several factors, including your current age and number of years until retirement.

At Age 55

If you’re looking to retire early, at age 55 you can usually begin withdrawing from workplace retirement plans, like 401(k)s or 403(b)s, and some other plans without the traditional 10% penalty.

This is true whether you retire, quit, or are fired, but this rule—referred to as the rule of 55—doesn’t apply to all retirement plans, so check whether your plan allows for this. Early withdrawal also means forfeiting any potential gains.

At Age 59 ½

At age 59-and-a-half, you can withdraw money from IRAs, deferred annuities, and other tax-deferred savings plans without paying a 10% penalty that applies to earlier withdrawals. Income tax is due on every withdrawal from a traditional IRA.

At Age 62

If your employer offers a pension, you may be eligible for full benefits at age 62. This is also the age you qualify for Social Security payments. Keep in mind that your monthly payments are reduced if you begin payments at this age.

At Age 65

Most employers with pensions offer full benefits at age 65. You also qualify for Medicare health plan benefits.

At Age 66

Those born between 1943 and 1954 qualify for full Society Security benefits at age 66. Your Society Security full retirement age depends on the year you were born.

At Age 67

Age 67 is the full retirement age for Social Security benefits for workers born in 1960 or later.

At Age 70

Boost your Social Security payments by 8% for each year you delay benefits between your full retirement age and age 70. After that, your base benefit maxes out, so start collecting Social Security by age 70 if you haven’t already.

At Age 72

You must begin withdrawals from your 401(k) and traditional IRAs and pay the associated tax bills by age 72. If you miss a minimum required distribution, the penalty is 50% of the amount that should’ve been taken out. If you’re still working, you can delay 401(k) withdrawals until you retire. Roth IRAs do not have withdrawal requirements.

Medicare is health insurance for people age 65 and older, and generally, enrolling in Medicare is the right choice if you’re paying for individual coverage.

If you’re still eligible for employer coverage and it’s considered “comparable coverage,” you may want to wait. If you have comparable coverage, you can enroll in Medicare up to eight months after that coverage ends.

Otherwise, you’re eligible to sign up for Medicare starting three months before you turn 65, and may be eligible for earlier coverage if you have a disability.

When you turn 65, there is an initial enrollment period that lasts for 7 months. It starts three months before you turn 65 and ends three months after the month you turn 65. If you miss this window and don’t have comparable coverage, you may have to wait to sign up and pay a monthly late enrollment penalty for the duration of your Part B (medical insurance) coverage.

If you work for a small company, you may be required to enroll in Part A (hospital insurance) coverage when you turn 65, but keep your employer plan coverage for doctor visits and prescription drugs. Verify details with your insurer.

There are lots of ins and outs of qualifying and enrolling for Medicare, and health care coverage in retirement is generally much more difficult to predict than living expenses. If you’re insured through an employer prior to retirement, find out what happens to the coverage if you retire before you’re eligible for Medicare at age 65. Your employer may pay the cost of supplemental, or Medigap coverage. Or you may be able to make other arrangements to continue health insurance if your spouse is covered under your employer plan and you’re eligible for Medicare before they are.

It’s worth looking into long-term care insurance, especially if you’re eligible for a group plan. Purchasing coverage in your 50s or 60s is likely to cost less than waiting until your well into retirement.

As part of retirement planning, consider how you want to make your medical wishes known. A living will is a legal document that describes the treatment you do and do not want. Use a living will to outline specifics about what kinds of drugs or medical treatments you want, should you become terminally ill, incapacitated, or in a permanent vegetative state (you’re unconscious, uncommunicative, and unlikely to get better). Be as specific as necessary.

Legal requirements for living wills vary by state, so make sure your document meets the standard where you live. Inform family members and medical professionals that you’ve signed a living will and let them know where they can find a copy. A lawyer isn’t required to draft a living will, but many will include it in the process of preparing a regular will.

Although a living will makes your wishes known, it doesn’t guarantee it will be followed. Appoint a health care agent or surrogate using a health care proxy document, or grant durable power of attorney for healthcare to someone who agrees to make the decisions you want. Make sure this individual agrees to be your agent or power of attorney and understands your wishes. Consulting an attorney in this process can give you additional peace of mind.

Instead of jumping straight from 40-hour work weeks to full retirement, some people prefer a phased or gradual retirement plan. This could look like reducing the number of days in your workweek or hours in your workday.

It could be tricky to stay with your current employer and collect retirement income, as many qualified employer plans have strict rules in this regard. If you opt to keep working on a reduced schedule, make sure you’ll have enough income to cover your standard of living. There could be other options too. Your employer may rehire you as an independent contractor or consultant, for instance.

It’s worth starting the conversation early if you’d like to discuss alternatives to retirement.