When can I retire?

For many people in employment, retirement is seen as the end goal. You work hard throughout your career to be able to afford a good life, and when it’s time to retire, you can enjoy the results of your efforts. But understanding when to retire — and what kind of retirement options are available — takes planning and preparation, and the sooner you start doing that planning, the easier your retirement could be.

Your retirement planning depends largely on the type of retirement account you use, as each one comes with different rules on when your money can be withdrawn, effectively deciding when to retire for you.

If you have a traditional IRA account, you can make withdrawals between the ages of 59½ and 72 without being penalized. If you make any withdrawals before this age, the government typically charges a 10% penalty on the amount you take out, while you could also be charged a state penalty depending on where you live. This will leave you with a reduced amount compared to what you could have if you waited a little longer.

If you’ve been saving for retirement in a 401(k), you can make withdrawals from the age of 55 without any penalties, provided you have left your job in the year you turn 55 or later. With this type of retirement plan, you can generally delay taking required minimum distributions until the time you retire.

A Roth IRA account needs to have been active for at least five years before you can start making withdrawals. After that, you can take money out from the age of 59½ without any penalty. If you make withdrawals before then, or before your account is five years old, you could be subject to penalties and taxes. If you are at least 59½ but your account is younger than five years old, you’ll be asked to pay taxes on any withdrawals but not penalties.

The rules around when to retire do have exceptions: if you have a disability or need the money for certain educational expenses, you can withdraw early, and you’re also welcome to withdraw your money whenever you like if you’re willing to pay the taxes and penalties imposed.

Social Security payments are generally intended to make up for around 40% of your income before retirement, however the more you earn, the less this will be. The amount you receive will be based on your 35 highest-earning years — as of January 2025, the average amount received is $1,976 a month,¹ while the highest amount possible is $4,018² a month for individuals retiring at full retirement age (FRA). 

Any American citizen who qualifies for retirement benefits can start collecting their Social Security benefits after the age of 62. However, the amount you receive will vary depending on when you start to claim it. If you take Social Security payments from the earliest date possible, you’ll get smaller payments for a longer period of time. If you wait until the latest age you can claim it, which is 70, you’ll get larger payments for fewer years. To understand how much you could expect to claim in Social Security, you’ll need to log into your mySocialSecurity portal at www.ssa.gov and view your latest statement.

If you’re asking “When can I retire?” the question you might really need the answer to is, "When can I afford to retire?" This can be answered by understanding your future income needs.

According to some estimates, most Americans should need around 70–80% of their pre-retirement income to continue enjoying a similar standard of life. Obviously this could go up or down, depending on the kind of retirement future you have in mind. 

To calculate your retirement income, you need to work out where your money will come from. Firstly, you might ask yourself, "How much Social Security will I receive?" You could also think about how much money you have in a savings account, and what kind of retirement account you have been contributing to. You should also think about any other sources of income, such as rental income or money from a part-time job. 

Once you’ve run the numbers, you should have a good idea about how much money you’ll be getting each month. That should help you realize when you could realistically afford to retire, and what kind of lifestyle you could expect to enjoy.

It’s often estimated that you’ll withdraw 4% of your savings in your first year of retirement. With that in mind, here’s a rough calculation you can use to figure out how much you’ll need in your savings account to be able to afford a comfortable standard of living once you stop working. 

1. Multiply your current household income by 0.8. This works on the assumption that you’ll need about 80% of your pre-retirement income.

2. Divide the result by 12 to give you a monthly amount.

3. Subtract your expected Social Security benefits and any expected pension income. 

4. This will leave you with the amount of savings you’ll need to withdraw from savings each month. 

5. Multiply that by 12 to get your annual withdrawal requirements

6. Finally, multiply this figure by the number of years you expect to be retired. That will give you a target for your retirement savings.This calculation will only give you a ballpark estimate, and the cost of living may go up or down as time goes on. Your savings may also increase in value depending on interest rates, so this number should just be used as a guideline to work toward.

"How to know when I can retire" is a question a lot of people ask throughout their careers, but the answer will be different for everyone. In short, you’ll be able to retire when the amount of money you’ll be bringing in — through a combination of Social Security benefits, savings, retirement accounts, investments and any other income sources — exceeds the amount you’ll need to maintain your desired standard of living. This figure will vary depending on what you hope to achieve with your retirement, so figuring this out and starting to plan ahead can help make it possible. 

Are you ready to grow your retirement funds? The Raisin marketplace gives you access to a diverse portfolio of savings products and competitive interest rates — all through your Raisin profile. Choose a savings account that best fits your needs, and start enhancing your retirement savings today.

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

Sources

¹https://www.ssa.gov/faqs/en/questions/KA-01903.html

²https://www.ssa.gov/faqs/en/questions/KA-01897.html