Retirement planning: Financial changes and the Rule of 55

Reaching age 55 introduces several financial opportunities and changes regarding retirement planning. A key provision is the ‘Rule of 55,’ an IRS rule that allows individuals to withdraw funds from their current employer’s 401(k) or 403(b) without the standard 10% early withdrawal penalty, provided they leave their job in or after the calendar year they turn 55.

This rule is specifically applicable to the retirement plan held by the most recent employer and does not extend to IRAs or plans from previous employers. For public safety employees working for a state or political subdivision, this age threshold can be as low as 50.

Other benefits at age 55 include the ability to make catch-up contributions to various accounts. The Rule of 55 can serve as a source of income for those pursuing early retirement, facing involuntary separation such as layoffs, or needing bridge income before becoming eligible for Social Security at age 62.