As we continue our series on retirement statistics here on DQYDJ, we have to first lay out one retirement age definition. Being an (ostensibly) personal finance web site means we often discuss retirement and financial independence strategies. The ‘early retirement age’, so to speak, is in dispute – specifically, what is early retirement? 62? 55?
There actually isn’t a stock answer, and you could make the case for a few ages before 65. However, we consider 55 as the cutoff age for early retirement. Here’s why.
What is the Early Retirement Age?
There are two ways to consider the early retirement age:
- What society considers ‘early’ and
- How government and institutions codify retirement ages
As you saw in our last post on how Americans pay for retirement, there can be large differences in the official and common definitions. Let’s take a look at both.
What Do People Think is the Early Retirement Age?
Based on popular opinion (with a backing of statistics), 55 years old is decent place to dra
- Of survey-classified retirees stating a retirement age, 15.89% were retired before 55 and 7.47% more retired at exactly 55 years old.
- Of current self-classified retirees stating a retirement age, only 19.98% were retired before 55 – and another 7.67% retired at exactly 55 years old.
- Of Americans 55 years old and younger, only 1.4% considered themselves retired. (73.2% for people 65 and older)
Buttressing this statistic is popular interest in early retirement. Here are Google searches for 5 year age intervals from 40 to 55:
Google searches certainly aren’t the final word. You could imagine a 53 year old searching for information on retiring before Social Security benefits typing ‘retire at 55’. But, unarguably in the United States, a 55 year old retirement means flying without government backing for some time.
What Does the Government Consider the Early Retirement Age?
In the United States, the two most commonly accepted full retirement ages are 65 and 66:
- Medicare coverage begins at age 65
- Social Security’s full retirement age is 66 for people born between 1943 and 1954
Social Security considers anything younger than full retirement age ‘early retirement’ – even 65. Currently, 62 years old is the minimum age to collect Social Security benefits – albeit reduced. As we showed in our last article, 62 was also the median age of current living retirees in America and the most common retirement age.
These ages are statistically unsatisfying. A full 61.54% of retirees retired before 66 (57.62% before 65), and 36.78% of retirees retired before 62.
Retirement Account Withdrawal Ages: IRAs, 401(k)s, and the Like
Another government blessed retirement age comes through the age limits for retirement account withdrawals. Age 59 and a half is the minimum age to withdraw from an IRA without penalty (save exception or 72t).
59.5 is also the minimum age to withdraw from a 401(k) (or 403(b) or similar) without 10% penalty. In some circumstances it is even 55. The IRS’s “Rule of 55” allows withdrawals from a plan if an employee quits, is fired, or is laid off after age 55. Note that the rule only applies to funds in that particular plan (or transferred in). They also obey other rules of the plan – even if it means all funds need to be withdrawn at once.
Still, 55 is an IRS codified age for fund withdrawal. How applicable that rule commonly is… well, that’s another issue – but for some retirees it’s a rule worth knowing.
An Imperfect Answer on the Early Retirement Age
There’s a ton of subjectivity in trying to define an early retirement age. There’s a case for drawing the line at 55, 59.5, 62, or even 64. Forced to pick one that captures the intent of the phrase, however, leads us to pick 55 years old as a compromise number.
When the term early retirement is used commonly, it implies rarity. The proportion of living retirees who retired before 56 and the number of current 55 and unders who retired is quite small.
As an aspirational matter – if retiring is your goal – 55 is a good age to target. It also leaves extreme early retirement up for debate whether you consider that 45, 40, 35 or… 30? For some data points on that front, see this post from our friend Olivia at Birds of a Fire.
This is all subjective, of course (and we’re interested in your take – please comment). However, it leads us into our next post – and you can probably guess the subject. We’ll also turn our eyes to financial independence as well, partners in the FIRE acronym or “Financial Independence, Retire Early”.