We think of retirement as a single milestone -- the day you finally exit the workforce for good. But when it comes to retirement benefits, there are actually six major milestones set by the federal government. You're free to retire anytime, but understanding these important dates can help you choose the smartest time for you to retire financially.
1. Age 59 and a half: The government stops penalizing your retirement distributions
Retirement distributions taken before 59 and a half are usually subject to a 10% early withdrawal penalty unless you meet certain criteria, like paying for a large medical bill, purchasing your first home, or taking Substantially Equal Periodic Payments (SEPPs). If you plan to retire before 59 and a half and want to avoid a 10% penalty, you'll have to rely on money in your savings account or taxable brokerage account until your retirement distributions are no longer subject to penalties.
Just because you can withdraw money freely at 59 and a half doesn't mean it's a good idea. Leaving the money in your retirement account gives it more time to grow so it can help cover more of your retirement expenses in the future. Avoid touching your retirement savings until you feel pretty confident that you have enough to last for the rest of your life.
2. Age 62: You become eligible for Social Security
You may sign up for Social Security once you turn 62, and many people choose to begin claiming their benefits at this age. But you should know that starting this early could cost you money over the long run. Every month you claim benefits before your full retirement age (FRA) -- more on that below -- reduces your benefit checks. You'll only get 70% of your scheduled benefit per check if you begin benefits at 62 and your FRA is 67, or 75% if your FRA is 66.
It could still make sense to start Social Security at 62 if you don't expect to live a long life or if you need this supplementary income to help you cover your living expenses. But if you're trying to maximize your benefits, and you expect to live into your mid-80s or beyond, you'll probably get more money by delaying benefits.
3. Age 65: You become eligible for Medicare
You become eligible for Medicare once you turn 65. This helps cover some of your medical expenses in retirement, but it won't cover everything. You'll still have deductibles, copays, and premiums, and it doesn't cover some expenses, like hearing aids, at all. You can purchase a Medicare supplement insurance policy to help fill in some of these gaps, but the premiums are another monthly payment.
If you're eligible for a health savings account (HSA), saving in one can help you cover your medical costs in retirement, but you can no longer contribute to an HSA once you enroll in Medicare. Those who are still working and have good health insurance through their employer may consider delaying Medicare until they retire so they can continue to put money away in their HSAs. You are still free to use the funds that are in your HSA at any point after 65.
4. Age 66 or 67: You reach your full retirement age
Your FRA is the age at which you become eligible for your full Social Security benefit based on your work record. Everyone's FRA was 65 for a long time, but that number climbed as people began living longer, and it now sits between 66 and 67, depending on your birth year. Here's a chart to help you find yours:
Full Retirement Age
66 and 2 months
66 and 4 months
66 and 6 months
66 and 8 months
66 and 10 months
1960 and later
Taking Social Security at this age is a good middle ground if you're not sure how long you're going to live. You may not get as much per check as you would if you delayed benefits until 70 (see below), but you'll probably get more than if you'd started benefits right away, at 62.
5. Age 70: You become eligible for your maximum Social Security benefit
You become eligible for your maximum Social Security benefit at 70. This is 124% of your scheduled benefit if your FRA is 67, or 132% if your FRA is 66. Starting at age 70 will give you the fewest checks overall, but those who live into their late 80s or beyond will probably get the largest lifetime benefit by delaying Social Security until this age.
This option is worth considering for seniors who are still working and those who don't need their Social Security checks to help them get by. You'll have to rely more upon your personal retirement savings while you're younger, but then your larger Social Security checks will cover more of your expenses later in retirement.
6. Age 72: You must begin taking required minimum distributions (RMDs)
The government requires you to begin taking required minimum distributions (RMDs) from all of your retirement accounts except Roth IRAs at 72. RMDs used to start at 70 1/2 and they still do for those born before Jul. 1, 1949, but the SECURE Act, which took effect in 2020, bumps RMDs back for to 72 for most people. The whole point of RMDs is to ensure that the Internal Revenue Service gets its cut of your savings before you die. You can calculate yours by dividing each of your retirement account balances by the distribution period next to your age in this worksheet.
Seniors who are still working at 72 and own no more than 5% of the company they work for may delay RMDs from their defined contribution plan until they retire, though they must still take RMDs from any tax-deferred IRAs in their name. You can reduce your RMDs by withdrawing money from your retirement accounts before 72 or by rolling money over into a Roth IRA, though if you do this, you will have to pay taxes on the money in the year you complete the rollover. Donating your RMDs is another option. It won't get you out of them, but the tax-deductible donation will prevent your RMDs from raising your tax bill.
Keep these milestones in the back of your mind as you're designing your retirement plan. Understanding how your decisions can affect your tax bill, Social Security benefits, and medical expenses can help you avoid costly mistakes and remain secure and confident as you age.