You Can Retire Early

Live off of your retirement income before age 62

bankhammersave1If you’re not sure about when to retire, you’re not alone. Uncle Sam seems to be just as confused. Consider the fact that normal retirement age according to Social Security Administration ranges from age 65 to 67. The younger you are, the longer it’ll take to get there.

But you don’t have to wait until the “normal” retirement age to stop fighting rush-hour traffic. You can quit work and start to collect Social Security retirement benefits at age 62. But if you start then, or any time before the normal age, your monthly checks will be smaller.

Many people want to retire before age 62–even as early as age 55. If you’re among them, more than likely you’ll need to tap a retirement account such as your IRA or 401(k) to cover your living expenses.

The catch? “If you draw down your retirement account before age 59-1/2, you may owe a 10% penalty,” says Mark Cortazzo, senior partner at MACRO Consulting Group, a financial planning firm in Parsippany, New Jersey. Say you pull $20,000 from your IRA when you’re 57. Not only will you owe income tax on that $20,000, you’ll owe a $2,000 surtax (10% of $20,000) as well.

There isn’t anything you can do about paying income tax if the money in your IRA or 401(k) has never been taxed. But there are a couple of ways to dodge the 10% penalty.

For starters:

1. Stay on the job until age 55. “The tax code provides penalty-free access to the money in your company’s retirement plan as early as the year you reach age 55 in case of ‘separation from service’ that year or later,” says Natalie Choate, an attorney with Nutter McClennen & Fish in Boston. Therefore, if you

retire at age 55 or later and leave your money in your former employer’s 401(k) plan, you can take withdrawals and escape the 10% surtax.

2. Take “substantially equal periodic payments.” The age-55 exception won’t help everybody. Your company may not allow former employees to stay in its 401(k) and take withdrawals. Even if it does, you may not want to keep your money there, limited as it would be to the plan’s investment choices.

What’s more, this exception applies only to money at the company you left at or after age 55. “Money you might have in IRAs or other company plans won’t qualify,” says Choate, author of Life and Death Planning for Retirement Benefits (Ataxplan Publications; $89.95). Perhaps most important, this exception won’t help if you want to retire before age 55.

At any age, as long as you’re retired, you can avoid the 10% surtax on any or all of your retirement accounts with a “series of substantially equal periodic payments,” according to Choate, or what she calls SOSEPP. In essence, you take an annuity based on your life expectancy. If you start the withdrawals at age 48, for example, you would use your official 36-year life expectancy to calculate how much you

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  • Samir

    The rules about retirement accounts can be very confusing. Thanks for helping to clarify.

  • I was very impressed by Tyrese  Gibson’s speech on the Trumpet Awards. It was a very motivating speech. The kind of speech that will help one to master the fear of taking on the challenge of starting a small business. Networking with positive people fires up that yes I can feeling.

  • GTG

    This tips is so informational….

  • Askmysecretary

    I see this as a key factor that hold so many would be entrepreneurs back is overcoming their own fears. We’ll talk our own selves out of our dreams

    •  Great points — we are our biggest “competition!” Be fearless.

  • Edwardboyd77

    Without a plan A<B<c it is reaLLY HARD TO take risk ! Careful thinking seems to always help in making the best choicesat risk taking ventures!

  • Gumdrop Swap

    Does the potential reward outweigh your risk? YES! This article confirms what I’ve been thinking for the next step for my business,

  • Brian S Arnold

    Very good information. Will help me make some solid decisions for my business.

    •  Awesome Brian! Much success to you! – Erica Nicole

  • God knew that business owners needed this great information to renew, enpower, and move each of us to the next dimersion.

    •  I’m glad my article resonated! Thanks La-Shanda!

  • Khyladex

    This is good information. Wish I would have had it in the beginning of starting my business.

  • this was intresting!

  •  Thanks Treena, for your feedback. A Plan B can be applied to internal resources and management of any suppliers, vendors or partners you may have. Change in business is inevitable — so having a solid plan and option base will help you navigate “the unexpected” with ease.

  •  Thanks Ransford!

  •  Thank you Tiffany!

  •  Thanks Tracey!

  •  Martice — I’m glad my tip was helpful – Erica Nicole

  • Thanks for the small business love for YFS Magazine! Stay inspired. – EN

  •  You’re welcome Adrian.

  •  Thank you! We love you too – small business rocks!

  •  You’re welcome! Thanks for the feedback. EN

  •  Very true! EN

  •  True. Experiment. Build. Refine – and repeat! EN

  •  Thanks.

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  •  Absolutely! Be inspired.

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  •  Thanks for the feedback Vicki.

  •  Nice! Yes – if only we could all know this from day one. Thanks for the feedback Michael.

  •  True. Glad it’s helpful.

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  •  Good book recommendation!

  •  Thanks Etta!

  •  Awesome!

  •  Thanks Cherry!

  •  Many startups combat issues like this via crowdsourcing platforms. Also when you bootstrap in lieu of traditional financing you must employ your dolllars to work even harder. Sticking to a minimum viable product (MVP) and testing often will ofset capital drain in most circumstances. Good points.

  •  Awesome! Glad it was helpful Brian!

  • Thanks Justina.

  •  Yes. Good points. Thanks.

  •  Thank you!

  •  You’re welcome!

  •  Take small calculated risks at first and seek “qualified” advice on how to minimize them. Sometimes we are so close to the trees we can’t see the forest.

  •  Thanks!

  •  Yes!

  •  Be fearless. Don’t be afraid to fail — it’s only data points to begin more intelligently.

  •  Very true. It should be in the manual! 🙂

  •  Thanks.

  •  Focus on delegation – hire interns to free up your time so you can spend more of it growing your business.

  •  Yes. You should focus on selling and shipping — but long term you must scale. Look for contract manufacturers in your area via ThomasNet and schedule site visits. As long as it’s just you — you limit production capability.

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  •  Risk is inevitable – embrace it.

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  • Yes. Good points. Go for it!

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  •  Awesome! Thanks for the feedback.

  •  Thanks Garnett!

  •  Thank you!

  •  Glad it was helpful.

  •  Thanks for the feedback.

  •  Thanks Kathy!

  •  Thanks for the feedback.

  • Thanks for the feedback.

  •  Thanks!

  •  You’re welcome Sharlene!

  •  Thanks!

  •  Thanks Garnett!

  • i m pleased to get this insight for me and my business at this time.

  • Kristina Nelson

    Great information for business risk and personal risk.

  • Informative post.You have shared really great post regarding business risk & personal risk.I would like to read your more updates.Keep them coming.

  • I’ve taken so many risks in the past & ended up with nothing so I am determined to be better prepared in what I need to do. 

  • Thank you for this insight.  I have been questioning myself for the past week if I wanted to continue with one business that I just started and if it was worth the risk; this article truly made a difference for me. 

  • Brenda Bradley62

    Finally, the information I have been needing!

  • Phoebe

    This is another wall.  The money aspect and the risk aspect of starting a business.  I want a business, but my decision is how bad do I want and what am I willing to sacrifice to make it a success?  

  • WLM

    The way I see it, you only live once. Play smart and play hard.

  • Sacharaniartistry

    I like the quote, “The more you know, the less you fear.” This is true. I’m adopting this it my list of life lessons.

  • Brett Patton

    Great information working on my plan c and d to minimize my risk

  • Sandra Butler

    Thank God for this valuable information…..

  • Sandra Butler

    The bigger the Risk the greater the reward….

  • Sandra Butler

    Determine how much risk you’re willing to take…

  • Sandra Butler

    Read this tip 10times.

  • Misha

    Extremely useful and applicable information! I really enjoyed it!

  • Misvista

    Excellent information and thought provoking comments. 

  • Great article on risk and I am assessing currently the risk I want to take with my business within the next 5 years.  

  • L morton


  • Cherkitawilliams

    This was a great article. I like the idea of having backup plans for the back up plan and then something else!! A great way to cover all of your bases and keep yourself protected!

  • Reaganm

    No Guts..No Glory!!!

  • Great information! Interested in finding out more about the YEC Urban organization. Sounds like something I would like to be involved in!

  • Richard Jackson

    This is great information. I’m glad I decided to visit BE’s website again. I enjoy the comments from all of you fellow go-geters

  • Erica- Thank you for sharing your insight!

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  • Selfdunn

    Open dialogue about business in general sparks ideas, motivates execution, trains the unfocused mind to stay diligent  and always think about growth!

  • Really great to finally find a blog I can relate to just my
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  • Jonathanpope71

    Great information.

  • You were on point with this one!

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  • Tia Jones

    This was great. I think fear is the reason most businesses fail.

  • Bobby

    Great article!!!

  • Bobby

    Great article!!!

  • Really great to finally find a blog I can relate to just my
    kind of thing. You have made really some great points. I have never thought
    about these points. Keep it up.

  • Really great to finally find a blog I can relate to just my
    kind of thing. You have made really some great points. I have never thought
    about these points. Keep it up.

  • A fear of succeeding sometimes takes others persuations to show you your potential.