Your retirement age: What’s the best time to stop working?

Have you ever wondered why age 65 is considered the "normal retirement age"? What if you plan to retire earlier—or later? Here’s how to time it just right.

Age 65 has long been considered a typical retirement age, in part because of rules around Social Security benefits. In 1940, when the Social Security program began, workers could receive unreduced retirement benefits beginning at age 65.

From 1983 to 2000, the rules changed to gradually increase the Social Security full retirement age to 67. Currently, the Social Security full retirement age is 66 for those born between 1943 and 1959, and 67 for anyone born 1960 or later.

And the Social Security age requirement is not the only thing that's changed. In 1940, anyone retiring at age 65 would spend, on average, around a dozen years in retirement. Today, because of improvements in healthcare, that number has increased to 18 years for men and 20 years for women.1 It's more important than ever to factor this trend into your retirement plans.

Avoid outliving your money

Whatever your age when you decide to retire, you don’t want to worry about outliving your money. Luckily, there are ways to help avoid it.

  1. Save more now. If you need to keep working because you won't have enough saved, take steps now to increase your savings. Contribute the maximum to your employer's retirement plan and to any individual retirement accounts (IRAs).
  2. Wait a little longer to collect Social Security benefits. For every year you wait past your full retirement age to elect benefits, you earn delayed retirement credits. The credits can increase your monthly benefit by about 8 percent per year, up to age 70.
  3. Limit your retirement spending. Many financial professionals recommend that you tap no more than 4% to 5% (adjusted annually for inflation) of your nest egg each year, to help make your money last.

Retirement milestones

There are a few key ages to keep in mind as you get closer to retirement:

  • At age 55, you may withdraw retirement plan savings without penalty if you leave your job or retire.
  • At age 59½, you may withdraw money from qualified plans/IRAs without IRS penalty, as long as the plan allows.
  • Age 62 is the earliest age when you may begin collecting Social Security.
  • At age 65, you become entitled to Medicare coverage.
  • Age 66-67 is the full Social Security full retirement age, depending on when you were born (see above).
  • Age 70 is the latest age to start receiving Social Security benefits.
  • At age 70½, you must start required minimum distributions (RMDs) from your retirement plans.2 

Whenever you plan to retire, it's important to create a strategy today. By reviewing your personal situation, a financial professional can help you set and work toward a target retirement age.

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1 National Vital Statistics Reports, Vol. 61 No. 6, October 2012

2 If a participant in a qualified retirement plan is still employed and not a greater than 5 percent owner, they are not required to start minimum distributions from that plan until they retire.