Retirement planning is both fun and perhaps a bit scary. Ending an era of dealing with the daily grind can be daunting. Many retirees choose to continue working in their field or pick up part-time employment doing something they enjoy. Whatever the plans for life in retirement may entail, there are some basic factors that should be taken under advisement.
Along with the “Great Resignation” brought on by the fallout of the global pandemic, early retirement is also on the rise. Untold thousands of people chose to leave the workforce voluntarily, and others opted for early retirement as a result of being laid off or furloughed due to temporary business closures. Taking early retirement certainly has a number of great benefits, but there are also some unpleasant implications, such as hefty tax consequences.
Funding for Retirement
Most professionals have a combination of resources they plan to use for their retirement goals. While many companies no longer offer traditional pension plans, other workplace retirement plans have become quite popular. More than sixty percent of employees participate in their company-sponsored 401(k) or similar plan. These qualified plans allow for tax-deferred retirement savings and are convenient for most employees. Most employer-sponsored plans and IRAs offer withdrawals beginning at age 59 and six months. At or after this age, Withdrawals are not subject to the IRS penalty for early withdrawal.
Social Security Withdrawals
Another major source of retirement funding is a monthly payment from the Social Security Administration (SSA). As of the current SSA guidelines, workers are eligible to begin their Social Security withdrawals as early as age 62 and six months. Since the maximum benefit is available if a participant begins taking withdrawals at age 70, it is important to understand that any SSA funds received prior to that will be reduced. In fact, that reduction could be as much as thirty percent when payments begin at age 62. Use the SSA calculator available online to determine the SSA benefit amounts for various ages. The best option to avoid unnecessary reduction is to utilize personal savings before tapping into SSA benefits.