Identification

• Your normal retirement age is determined to be age 59 1/2. The IRS uses this age as the point at which you may withdraw money from a 401(k) plan or IRA, and receive money from a pension plan without incurring a 10 percent penalty for early withdrawals.
  
  

Significance

• The significance of having a normal retirement age is that the IRS can establish an age at which you are able to quit working and live off of your savings. The IRS dictates when this age is and provides rules for withdrawing money from some types of accounts like traditional IRAs and 401k plans. For example, money may be withdrawn from traditional 401(k) plans and IRAs at age 59 1/2, but must be withdrawn at a certain rate (based on your age) when you reach age 70 1/2.
  
  

Benefit

• The benefit of a normal retirement age is that it encourages you to continue working instead of trying to retire too early. Retiring early may cause you to run out of money before you die. If you run out of money and you are too old to return to work, then you would be left destitute.
  
  

Disadvantage

• The disadvantage of a normal retirement age is that it does not allow you to choose how long you want to work for. If you accumulate enough savings to retire prior to age 59 1/2, your options are limited as to how you may access your retirement savings. In many cases, you will be forced to pay a 10 percent early withdrawal penalty.
  
  

Consideration

• If you wish to retire early, the IRS does provide an exception to the normal retirement age. IRS rule 72(t) allows you to retire prior to age 59 1/2 without incurring a penalty. However, this early retirement provision comes with a few rules. First, your withdrawals must be equal and substantial and based on the IRS' mortality tables. Second, the payments must be made until your age 59 1/2 or for at least 5 years, whichever comes later.