Is it wise to retire at 62?: Weighing the pros, cons, and financial realities

While the average retirement age in the U.S. hovers around 62, deciding whether it is wise to retire at 62 is a deeply personal choice that requires a careful analysis of your financial health, longevity, and lifestyle goals. It is not a decision to be taken lightly and depends heavily on your unique circumstances.

Quick Summary

Retiring at 62 is possible but comes with significant financial tradeoffs, including permanently reduced Social Security benefits and covering a healthcare gap before Medicare. The decision relies on having adequate savings, a clear understanding of costs, and emotional readiness for the lifestyle change.

Key Points

• Reduced Social Security: Claiming benefits at 62 results in a permanently reduced monthly payout, up to 30% less than your full retirement age benefit.

• Healthcare Gap: Retirees at 62 must fund their own health insurance until Medicare eligibility begins at age 65, a potentially significant expense.

• Longevity Risk: Retiring early means your savings must last longer, increasing the risk of running out of money, especially with longer life expectancies.

• Importance of Savings: A larger nest egg is essential to offset reduced Social Security and cover the healthcare gap. Experts suggest aiming for 8-10 times your annual salary by retirement.

• Plan Your Lifestyle: Beyond finances, consider your emotional and social readiness for retirement. Having a plan for how you will spend your time is crucial for happiness and purpose.

• Maximize Later: Delaying Social Security until age 70 can dramatically increase your monthly and lifetime benefits, providing a more robust income stream in later years.

Understanding the Financial Implications of Retiring Early

Retiring at age 62 has significant financial consequences, primarily impacting Social Security benefits and requiring substantial personal savings.

Reduced Social Security Benefits

Claiming Social Security at 62, the earliest age possible, results in a permanent reduction in monthly benefits compared to waiting until your full retirement age (FRA). For those born in 1960 or later, the FRA is 67, and claiming at 62 can reduce benefits by up to 30%. Delaying benefits until age 70 can significantly increase the monthly payout due to delayed retirement credits.

The Importance of a Larger Nest Egg

An earlier retirement means your savings must cover a longer period, increasing the risk of outliving your funds. Retiring at 62 also means fewer years of contributing to retirement accounts and potentially missing out on valuable catch-up contributions available later in your career. Planning for inflation and having an appropriate investment strategy are crucial to make your savings last.

Navigating the Healthcare Challenge

Healthcare is a major retirement expense, and retiring at 62 creates a gap before Medicare eligibility begins.

Covering the Medicare Gap

Medicare coverage starts at age 65. If you retire at 62, you will need to secure health insurance for three years, which can be expensive through private plans, COBRA, or the ACA marketplace. Budgeting for this gap is essential.

Projecting Future Healthcare Costs

Even with Medicare, retirees face premiums, deductibles, and other out-of-pocket costs. Healthcare expenses tend to increase over time, so accurate long-term projections are necessary, including potential long-term care needs.

Weighing Non-Financial Factors

Retirement involves more than just finances; it significantly impacts your lifestyle and emotional well-being.

Lifestyle and Emotional Readiness

Work often provides purpose and social connections. Leaving the workforce requires having a plan for staying engaged through hobbies, volunteering, or other activities to maintain mental and emotional health.

Health and Longevity

Your current health and family history are important considerations. Retiring earlier may be appealing if you have health concerns, while good health and a longer life expectancy might suggest working longer to build a larger nest egg and maximize Social Security benefits.

Comparison: Retiring at 62 vs. Waiting

Feature	Retiring at Age 62	Retiring at Age 67 (FRA)	Retiring at Age 70
Social Security	Earliest access, but benefits permanently reduced by up to 30%.	Receive 100% of your full benefit based on your earnings record.	Maximize benefits with delayed retirement credits, up to 124% of your FRA benefit.
Time in Retirement	Longer period to enjoy leisure and hobbies, but also a longer period for savings to last.	Balances work time with a reasonable retirement length.	Shorter retirement period, but with maximized benefits.
Health Insurance	Gap in coverage until Medicare eligibility at age 65, potentially incurring high private insurance costs.	Immediate access to Medicare.	Immediate access to Medicare.
Savings Impact	Fewer years to save and fewer years for investments to grow; higher withdrawal rates may be needed.	More time to save and grow investments; less risk of outliving savings.	Most time to build your nest egg and take advantage of catch-up contributions.
Lifestyle Flexibility	High degree of immediate freedom to pursue passions while you're still young and active.	More moderate approach, with a strong financial foundation.	Guaranteed maximum income, offering peace of mind and financial security later in life.

Steps to Determine if Retiring at 62 is Right for You

1. Run the numbers: Calculate projected expenses and income sources, including reduced Social Security and savings withdrawals.
2. Model different scenarios: Use retirement calculators to test your budget under various conditions.
3. Address the healthcare gap: Determine the cost of health insurance before Medicare starts.
4. Evaluate your goals: Consider your non-financial plans for retirement.
5. Pay off high-interest debt: Reduce debt to improve cash flow.
6. Diversify income sources: Explore options like part-time work or annuities.
7. Consult a professional: Seek personalized advice from a financial planner. The Social Security Administration is a key resource for government information.

Conclusion: Making an Informed Decision

Retiring at 62 is a significant decision with both advantages and disadvantages. While the appeal of early freedom is strong, it requires careful financial planning to account for reduced Social Security benefits, the cost of healthcare before Medicare, and ensuring your savings will last. A thorough assessment of your financial situation, health, and personal goals is crucial to determine if retiring early is the right path for you.

Frequently Asked Questions

How much less Social Security will I get if I retire at 62?

For those with a full retirement age of 67, claiming Social Security at 62 will result in a permanent reduction of up to 30% of your monthly benefit. The exact amount depends on your birth year.

How can I pay for healthcare if I retire at 62?

Since Medicare eligibility starts at age 65, you will need to find alternative health insurance coverage for three years. Options include private insurance, COBRA, or health insurance marketplace plans. These costs must be factored into your retirement budget.

What is a good retirement savings goal for someone retiring at 62?

Financial experts often recommend having 8 to 10 times your annual income saved by age 62, especially since your savings need to last longer. However, the exact amount needed depends on your desired lifestyle, expenses, and other income sources.

Can I work part-time after retiring at 62?

Yes, working part-time is a great way to supplement your income and delay withdrawing from your retirement accounts. This can extend the life of your savings and provide extra funds for leisure or unexpected expenses.

What are the emotional challenges of retiring early?

Retiring early can lead to a loss of routine, purpose, and social interaction. It's important to have a plan for staying engaged, whether through hobbies, volunteering, or a new venture, to avoid feelings of boredom or depression.

Is it a good idea to pay off my mortgage before retiring at 62?

Many financial planners recommend paying off high-interest debt, including mortgages, before retirement. Eliminating this large monthly expense can provide greater financial flexibility and help your savings last longer.

How can inflation affect my retirement at 62?

Inflation can significantly erode your purchasing power over a long retirement. By claiming a reduced Social Security benefit early, your annual cost-of-living adjustments will also be smaller, making it harder to keep pace with rising costs.