What's the difference between retiring at 62 and 65?

According to the Social Security Administration, most retirees start claiming benefits before their full retirement age. This guide explores a key decision point for many: what's the difference between retiring at 62 and 65, and how do these choices affect your long-term financial and medical security?

Quick Summary

Retiring at 62 offers earlier access to retirement but comes with a permanently reduced Social Security benefit and a gap in Medicare coverage until age 65. Retiring at 65 provides a higher monthly Social Security payment and immediate Medicare eligibility, though it means a few more years of work.

Key Points

• Social Security Benefits: Claiming benefits at 62 results in a permanently reduced monthly payment (up to 30% less than your full retirement age benefit for those born after 1960), while claiming at 65 results in a smaller permanent reduction (around 13%).

• Medicare Eligibility: Retiring at 65 aligns perfectly with Medicare eligibility, eliminating the need for expensive private insurance to bridge the three-year gap faced by those retiring at 62.

• Long-Term Income: For those with a long life expectancy, waiting until 65 or later can lead to a significantly higher lifetime income due to larger monthly Social Security payments.

• Health Insurance Costs: Retirees at 62 must budget for health insurance premiums until they qualify for Medicare at 65, a major financial consideration that those retiring at 65 avoid.

• Savings Growth: Continuing to work until 65 allows for three additional years of saving and investment growth, often bolstered by employer contributions, resulting in a more robust nest egg.

Understanding Social Security and Retirement

Deciding when to stop working is one of the most significant financial choices you will make. For many, the debate centers on retiring at age 62 versus age 65, largely due to the milestones associated with Social Security and Medicare. Your "full retirement age" (FRA) is crucial for this decision and depends on your birth year. For anyone born in 1960 or later, the full retirement age is 67. Claiming benefits before your FRA reduces your monthly payment, while delaying it can increase your payment, but there's more to the story than just the numbers.

The Case for Retiring at 62

Retiring at the earliest eligibility age of 62 can be appealing for those seeking immediate freedom or due to unforeseen circumstances like job loss or health issues. The main benefit is receiving income sooner. However, this results in a permanent reduction of up to 30% in your Social Security benefit compared to claiming at age 67. Additionally, you will need to find alternative health insurance until you become eligible for Medicare at 65, which can be costly.

The Arguments for Retiring at 65

Waiting until 65 generally provides a more favorable financial outcome. While still earlier than the full retirement age of 67, claiming at 65 leads to a significantly smaller benefit reduction (approximately 13% for those born in 1960 or later). The extra three years of work also allow for continued contributions to retirement savings and potential investment growth. A significant advantage of retiring at 65 is immediate eligibility for Medicare, avoiding the expense of private health insurance needed by those retiring earlier.

Comparing Your Options: Financial and Lifestyle Impacts

Choosing between retiring at 62 and 65 has long-term implications for your finances and lifestyle.

The Lifetime Income Conundrum

The total amount of Social Security benefits you receive over your lifetime depends on both your monthly payment and how long you live. A higher monthly benefit from delaying retirement could result in more cumulative income if you live a long life. Conversely, starting benefits earlier might provide more total income if your life expectancy is shorter. For example, delaying from 62 to 65 significantly increases your monthly payment, and this difference accumulates over a retirement that could span 20-30 years.

The Power of Patience

Working longer offers several financial benefits. You can continue saving in tax-advantaged retirement accounts, potentially receiving employer match contributions. The extra years also allow your existing investments more time to grow through compounding. Beyond the financial aspects, continuing to work can provide valuable social interaction and mental engagement.

Comparison Table: Retiring at 62 vs. 65

Feature	Retiring at 62	Retiring at 65
Social Security Benefit	Permanently reduced by up to 30% (for FRA 67)	Reduced by a smaller amount (approx. 13% for FRA 67)
Access to Funds	Begin collecting benefits earlier	Higher monthly payments begin at age 65
Medicare Eligibility	Not eligible; must use private insurance until 65	Immediately eligible for Medicare at age 65
Retirement Savings	Less time to save and grow assets	Three additional years to contribute and benefit from growth
Healthcare Costs	Higher out-of-pocket costs for three years	Lower healthcare costs with Medicare coverage
Income during Retirement	Lower monthly income for life	Higher monthly income for life
Flexibility	More time for personal pursuits and hobbies immediately	Balances a longer working career with higher benefits

Factors to Consider in Your Decision

Several personal factors should influence your retirement timing:

• Health and longevity: Your current health status and family history can impact your expected lifespan and how long you will receive benefits.
• Financial needs: Assess your savings, investments, pensions, and other income sources to determine your reliance on Social Security.
• Spousal benefits: Understand how your retirement age affects potential spousal and survivor benefits.
• Lifestyle goals: Consider your desired retirement activities and whether delaying retirement impacts those plans.

What About Working in Retirement?

Claiming Social Security benefits before your full retirement age while still working can lead to a temporary reduction in benefits if your earnings exceed a certain limit. For 2025, if you are under your FRA, $1 is deducted for every $2 earned above the limit. This penalty ends once you reach your FRA. This rule is another point in favor of delaying retirement, as it reduces the period where your benefits could be affected by earned income.

For personalized advice, consulting a financial advisor is recommended. The Social Security Administration's official website also provides valuable information.

Conclusion: Making the Right Choice for You

The decision of when to retire at 62, 65, or later involves balancing the appeal of early freedom with the need for long-term financial security. It's crucial to understand the permanent reduction in Social Security benefits and the cost of health insurance before Medicare eligibility. For many, retiring at 65 offers a more financially stable transition with higher monthly benefits and immediate access to Medicare. By carefully evaluating your health, finances, and personal goals, you can make an informed decision that supports your retirement dreams.

Frequently Asked Questions

What is the biggest financial difference between retiring at 62 and 65?

The most significant financial difference is the permanent reduction in your Social Security benefit. At 62, the reduction is substantial (up to 30%), whereas at 65, the reduction is much smaller (around 13%). This lower monthly payment at 62 lasts for the rest of your life.

How does retiring at 62 affect my Medicare coverage?

If you retire at 62, you will not be eligible for Medicare, which begins at age 65. You will need to find and pay for your own health insurance, potentially through COBRA, a spouse's plan, or the private marketplace, until you turn 65.

Is it always better to wait until 65 to retire?

Not necessarily. The best age depends on your personal circumstances, including your health, financial situation, and lifestyle goals. While waiting until 65 offers higher benefits and immediate Medicare, retiring at 62 provides income sooner and more freedom if you have other resources and a shorter life expectancy.

Will working part-time after claiming Social Security at 62 reduce my benefits?

Yes. If you claim Social Security before your full retirement age and continue to work, your benefits may be reduced if your earnings exceed an annual limit. The Social Security Administration will temporarily withhold $1 for every $2 earned over this limit, though the amount may be restored later.

How does delaying retirement to 65 impact my savings?

Working until 65 allows you to continue saving and investing for three more years. This means more time for your retirement accounts to grow, potentially with employer matching contributions, resulting in a larger nest egg when you do retire.

What if I have health problems and can't work until 65?

If health issues prevent you from working, you may be eligible for Social Security disability benefits. If you receive disability benefits, they will convert to your full retirement benefit once you reach your full retirement age, providing an unreduced benefit amount.

Does my decision to retire at 62 or 65 affect my spouse?

Yes. If your spouse claims a benefit based on your work record, your decision affects their potential survivor benefits. Claiming early at 62 leads to a permanently smaller benefit, which could mean a lower survivor benefit for your spouse if you pass away first.