The U.S. doesn't have an official retirement age. This means that workers can decide to end their careers at whatever point in time they choose.
Recent Motley Fool research found that the average retirement age in the U.S. is 62, though. So if that's the age you'll be reaching this year, retirement may be on your radar. And if so, here are a few important things you should know.
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1. You can claim Social Security -- but there's a catch
Once you turn 62, you can sign up for Social Security at any point in time. And many seniors do, in fact, choose to file for Social Security at 62 to start getting their monthly benefits as soon as possible.
But you should know that failing to wait until full retirement age to claim Social Security will reduce your monthly benefits for life. And if you're turning 62 this year, it means your full retirement age won't arrive until age 67. Filing for Social Security at 62 could therefore mean slashing your monthly benefits by about 30%, which could become problematic as you age and your savings start to dwindle.
2. You can tap your retirement savings penalty-free -- but you may want to wait
The nice thing about being 62 is that you're eligible for penalty-free withdrawals from an IRA or 401(k) plan. In fact, those penalties go away once you reach age 59 1/2. But just because you can tap your retirement savings now doesn't mean that you should.
First of all, the longer you wait to take IRA or 401(k) withdrawals, the longer that money might last. But also, both IRAs and 401(k) allow your savings to grow in a tax-advantaged fashion. So the longer you wait to tap that money, the more tax-deferred gains you might enjoy in the case of a traditional savings plan, or the more tax-free gains you might enjoy if you have your savings in a Roth account.
3. You're a few years shy of being eligible for Medicare
It's a big misconception that Social Security and Medicare eligibility begin at the same age. Though you can claim Social Security at 62, you'll need to wait until age 65 to enroll in Medicare unless you have a qualifying condition that an exception is made for.
Now it may be that you're looking to retire at 62 and jump onto a spouse's health insurance plan since they'll still be working. And that strategy may work out perfectly well.
But do be careful if you're planning to retire three years before you're eligible for Medicare and you don't have a backup plan for health coverage. Buying your own can be very expensive. And even then, the level of coverage you receive might leave you liable for expensive out-of-pocket costs.
If you're feeling like you're ready to stop working but are worried about health insurance, you may want to see if it's possible to maintain a part-time schedule -- either at your current company or elsewhere. Keeping part-time hours could make it so you're eligible for employer-subsidized health coverage a bit longer.
You may be excited to celebrate your 62nd birthday this year -- especially if it means that retirement is right around the corner. But do keep these important points in mind if that's your plan, and think through the pitfalls of ending your career at 62 before moving forward.
