Spending your twilight years globetrotting, doting on grandchildren and not worrying about money is the retirement dream. But before you settle on early retirement, consider a few issues. At 55, you cannot tap into your retirement accounts and Social Security without tax penalties.
Failing to account adequately for their life expectancy leads many couples to underfund their retirement accounts. According to the Society of Actuaries, females have a 50 percent chance of seeing age 85, while men have a 40 percent chance. Retiring at age 55 means saving enough for at least 30 years of income without a job. By adequately accounting for your life expectancy, you ensure you do not short-change yourself.
Sources of Income
You need independent sources of income to fund your retirement until the age of 59-1/2. According to U.S. News, the majority of your income between the ages of 55 and 60 come from a pension, spouse’s job, rentals, savings, or investment accounts. You should only tap your retirement accounts in an emergency to avoid taxes and penalties before you reach the minimum retirement age.
Total Retirement Income
According to Time Business & Money, you need 80 percent of your previous year’s income to account for one year in retirement. So, multiple your previous year's income by 0.80. Then multiply the product by the number of years you expect to live -- the minimum being 30 -- to get the total amount of money you need in retirement. A couple making $50,000 needs at least $1.2 million -- more if they live past age 85.
Social Security income does not kick in with reduced benefits until the age of 62 with a reduction of 30 percent of your benefits. You may withdraw from your 401(k) at 55 provided you are no longer employed with the company. You do not pay an early withdrawal penalty but you do pay income taxes on your withdraws. You may withdraw your contributions from an IRA before age 59 1/2 but withdrawing the earnings results in penalties. Consider enrolling in a substantially equal periodic payment program (SEPP) with your IRA or 401(k) plan. A SEPP allows you to withdraw from a 401(k) or pre-tax IRA without penalties as long as it continues for at least five years.
Leigh Thompson began writing in 2007 and specializes in creating content for websites. She has been published online in various capacities. Thompson has an associate degree in information technology from the University of Kansas and is working on a bachelor's degree in business and personal finance.