What is the optimal age to retire?

Older man and grandson water plants in a garden

When asked when they plan to retire, most people say between 65 and 67. But according to a Gallup survey the average age that people actually retire is 61. Although the lower actual retirement age may include some happy people who realized they had enough money to retire earlier than planned, the reality is that we don’t always get to make that choice.

Some people retire earlier than intended because of job loss, personal health or family situations such as the need to care for an elderly parent. Just as circumstances may compel some to retire early, others may find it necessary to work longer than planned because of financial need.

Nothing is certain in life, but if you’ve been successful at your career and saved steadily into your retirement fund, that decision may be largely up to you. If you’ve been particularly successful, you may even be in a position to retire in your 50s or even earlier. However, if you plan to retire that early, you should have sources of retirement income other than your 401(k) or IRA in order to avoid paying an early withdrawal penalty.

Here are the major age milestones that can affect your retirement asset planning:

55 – Although in most cases, you can’t take money from your 401(k) until age 59½ without paying a 10% penalty, there are some exceptions to that rule. For example, if you leave or are dismissed from your current employer during or after you reach age 55, you can start taking withdrawals from that employer’s 401(k) plan without penalty. There are pros and cons for doing so, but if you are considering such a move, make sure you understand the IRS rules on early distributions.

59½ -- This is the age when you can start withdrawing money without penalty from your pre-tax retirement accounts such as a company 401(k) or a traditional IRA. Just remember that the amount that you withdraw now counts as taxable income.

62-65 – The youngest age you can start taking Social Security is 62. But if you take your monthly benefit this early, it will be reduced to about 75% of your future full retirement benefit – and it would stay locked in at that level (except for cost of living increases) even after you reach your full retirement age at 66-67. You can use the Social Security Administration’s age calculator to enter your birth year to find out what lesser portion of your full benefit you would receive if you should have to start taking your benefits early.

65 – Eligibility for Medicare begins. Even if you are still working and have private health care insurance, you need to sign up for Medicare or face a financial penalty if you do not take action during the enrollment period. When you sign up for Medicare, you might also consider adding a Medicare supplemental plan  because standard Medicare does not cover all costs.

66-67 – Depending on your year of birth, your Full Retirement Age (FRA) will be between 66 and 67. For example, if you were born in 1955, your FRA is 66 years and 2 months while if your birth year was 1959, your FRA is 66 years and 10 months. For those born in 1960 or later, full retirement age is 67.

67-70 – During this age range, your Social Security benefit, if you haven’t already taken it, will increase by 8% for each year you delay taking it until you turn 70. So, if your benefit will be, say, $2,500/month if you start at your full retirement age, it would be more than $3,300/month if you can wait. So, in effect, your Social Security benefit could be more than 30% higher at 70 than if you start taking it at your full retirement age.

However, if you make this choice to delay, know that you could stand to lose up to four years of receiving the lower benefit. Depending on your specific full retirement age, that delay could mean declining a total of $90,000 to $120,000 in benefits at the FRA rate. If you delay taking the benefit until age 70, it would take you about a decade to fully recoup those total benefits. That said, if you don’t need Social Security during your late 60s and you fully expect to live past 80, opting to maximize your Social Security benefit by taking it later might still be the best choice for you.

70½ – At age 70½, you are required by law to begin taking money out of any pre-tax retirement plans you have such as 401(k)s, IRAs and most pensions and annuities.

These milestones should be considered as you make your decision of when to retire. But the “optimal age” for you to retire will depend on factors such as your anticipated lifespan and whether your savings can provide a sufficient and sustained monthly income for the remainder of your life. Working with a financial advisor can help you calculate whether your current savings plan is on track to provide the income you will need to maintain your lifestyle in retirement.

Your health and anticipated lifespan are other key factors. If you are in good health and your parents made it to their late 80s or early 90s, that’s good news. But it also means that if you retire at 62 your savings need to last 25-30 years. If, however, longevity is not in your genes, or if you are already dealing with a medical condition that is expected to limit your lifespan, you may want to make other choices to draw on your funds sooner.

How age at retirement affects retirement savings income

Unlike Social Security, there is no official percentage by which your retirement savings in a 401(k) or other retirement plan would increase or decrease because of your age. However, there are two fundamental factors that will influence your savings growth:

  1. For each year that you continue working, you are putting another year of savings into your retirement plan, and you’re giving your total investment another year to earn a return.
  2. Each year you delay drawing from your retirement fund is one less year of retirement that your fund has to stretch to cover.

So, if you retire at 66 and your plan assumes a potential lifespan of 90, then your accumulated savings have to finance 24 years of your life, while if you retire at 62 you will have a smaller total amount saved and you will have to cover 28 years.

The chart below demonstrates the implications of this choice. The retiree in this example wants to have an annual retirement income of $60,000, and at age 66 he would get half of that from Social Security. Assuming an annual 401(k) withdrawal rate of 4% (the industry standard), the retiree would need $750,000 in savings to support annual withdrawals of $30,000 until age 90.

If, however, he decides to retire at 62 and wants to have the same annual income, this individual would need to withdraw $37,880 per year from his 401(k) savings to make up for a smaller Social Security benefit and his savings will need to cover four additional years. That would require a significantly larger pool of savings – estimated here at $947,000.

On the other hand, if the same person waited until age 70 to retire, he would receive $39,690/year from Social Security and therefore would only need to withdraw $20,310/year from his 401(k) – and his savings would have four fewer years to cover. He would be able to maintain his desired $60,000/year of retirement income with a total savings of $507,750.

Savings needed to support


Desired Income

Soc. Sec.


Savings needed

















Making adjustments before you retire

The above example illustrates why it’s so important to start working with a financial advisor about 10 years before the age you hope to retire. By doing this essential math early, you will have time to adjust your retirement plan while you’re still working.

If you want to fully retire at 62, but are not on track to have sufficient savings by then, you have two main options to change that:

  • Contribute a higher percentage of your income to your retirement plan.
  • Consider (with your advisor) more aggressive investing strategies that may yield more, but also carry more risk.

If you’re not going to be able to reach your savings goal to support full retirement at 62, talk to your advisor about your options – which could include a period of semi-retirement as a bridge between full-time work and full retirement.

Work with a financial advisor today to ensure you’re on track no matter when you choose to retire.