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3 Rules to Keep in Mind if You're Retiring Early

By Maurie Backman – Nov 19, 2021 at 6:18AM

Key Points

  • Many people aim to retire early.
  • You might face certain challenges if you leave the workforce at too young an age.
  • It's important to know what income sources and benefits will and won't be available to you in early retirement.

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If you plan to make an early workforce exit, it's important to know what you'll be up against.

Early retirement may be something you've been dreaming about for years. And if you do a good enough job of saving money for it, it could end up becoming your reality.

But retiring early has its challenges. Here are a few rules to keep in mind if you're going to go this route.

Two smiling people with bikes.

Image source: Getty Images.

1. You can't tap your IRA or 401(k) without penalty until age 59 1/2

People are often encouraged to save for retirement in an IRA or 401(k) plan. That's because these accounts are loaded with tax benefits that can save you money and make it easier to grow wealth over time.

The problem with IRAs and 401(k)s, though, is that you're not allowed to take withdrawals before age 59 1/2. If you do, you'll face costly penalties.

There are some exceptions to this rule, but if you're aiming to retire in, say, your early 50s, you should plan on having another income source to access. That could mean cashing out investments in a regular brokerage account or dipping into your savings account.

2. You can't claim Social Security until age 62

Social Security helps a lot of people stay afloat financially during retirement. But the earliest age you're allowed to claim benefits is 62, and if you'll be retiring at a younger age, those benefits will be off the table.

Furthermore, your Social Security benefits will be calculated based on your 35 highest-paid years in the workforce. But if you retire before you're able to put in 35 years of work, you'll have a $0 factored into that formula for each year you're missing an income. That could result in much lower benefits by the time you are eligible to file for them.

Furthermore, claiming Social Security at age 62 will result in a reduced benefit, too. So if your goal is to file for benefits the moment you're eligible, you should be aware that that income stream will then be slashed for life.

3. You can't get coverage through Medicare until age 65

Many retirees rely on Medicare for their various healthcare needs. But you're not eligible for coverage under Medicare until age 65. If you'll be retiring in your 50s or early 60s, you'll need another means of securing health coverage.

Depending on your income, you may be entitled to a subsidy for a health insurance plan you procure through But paying for health insurance could still end up being more expensive than you may have bargained for.

Are you ready to retire early?

If you're sitting on a large pile of savings and have mapped out a plan for early retirement, then you may be in a strong position to move forward with that goal. But before you leave your career behind for good, make sure you've accounted for the above rules.

You may not be able to access your IRA or 401(k), as well as your Social Security benefits, for many years. And you may need to spend a large chunk of your income to secure medical coverage. As long as you've thought these things through, you can approach early retirement with a lot more confidence.

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