You’ve been saving for decades (good for you!), and now you’re ready to retire or withdraw funds early before your full retirement age. Before you take the next step toward withdrawing retirement funds early, consider these important penalties and reductions.
Social Security: Reduction
There is no early withdrawal penalty for receiving Social Security, but if you retire before the full benefit age of 66, your social security benefits will be reduced. You can start receiving Social Security benefits as early as 62, but your benefits may be drastically lower, by as much as 30 percent.
If you have a pension through your employer, you likely won’t be able to collect it until you reach your pension plan’s retirement age. Some plans may allow early retirement, but there’s a good chance your monthly payout will be smaller.
IRA, 401(k): Penalty
If you take an early withdrawal from a retirement plan, like an IRA or a 401(k), before you reach age 59 1/2, and you don’t meet the requirements for an exception such as disability, medical or military, you will likely have to pay an additional 10 percent early withdrawal tax on distributions made before retirement age.
Health Care: Reduction
If you opt for early retirement, it’s likely you’ll also lose the perks and benefits that come with your job, namely health care. And the minimum age to qualify for Medicare is 65, so if you retire before, you’ll need to think about how to obtain health care coverage. This could be an important matter to consider if you’ve depended on employer-based health coverage during your working years.