Although the notion of early retirement has universal appeal, relatively few individuals manage to accomplish the feat. Most employed persons end up working until sometime around the end of middle age. To prepare for the transition to retirement, middle-aged workers can develop a tentative timetable for tapping their financial resources in the most efficient manner.

Most types of financial accounts used for retirement savings have age-based restrictions, such as a penalty for early withdrawal. Therefore, the date on which you officially retire from work may be different from when you begin to withdraw retirement funds. In deciding when to retire, there are several age-based factors to consider as part of your overall retirement strategy.

Age 55

If you have an employer-sponsored 401(k) account, there is an exception to the early withdrawal penalty if you leave that employer after reaching age 55. The 401(k) penalty exception is applicable to any year in which you are at least age 55 at the close of the year, so long as you leave the place of employment. This exception applies only to 401(k) accounts, so individuals with IRAs typically wait a few years longer to consider an account distribution.

Age 59 1/2

Once you reach the age of 59 1/2, you may withdraw funds from your 401(k) or IRAs without penalty. The ideal situation, however, is to leave those funds intact for as long as possible. Unless a suitable rollover option becomes available, you might want to avoid retirement account withdrawals during the time you remain employed. You may prefer to continue working at least until Social Security becomes a factor in retirement planning.

Age 62

Social Security retirement benefits may be started as early as age 62, but your monthly payment will be reduced due to the early start. Until you reach age 70, your monthly benefit amount can be increased by delaying the start of Social Security payments. The decision on when to start Social Security retirement benefits rests largely on your other retirement account distributions and when you intend to leave the workforce.

Tax considerations after retirement

The income tax rate for fully retired persons is typically lower than the tax rate of working individuals. If you are in a relatively low tax bracket, distributions from a traditional IRA or a 401(k) account should result in minimal additional tax. If you remain in a higher tax bracket, consider taking tax-free withdrawals from any Roth IRA you might own.

Some people view the end of middle age as an opportunity to pursue new goals and objectives. Contact a financial planning service for more advice on how to develop a retirement plan.