If you want to retire at 62, join the crowd — the thought of so much freedom can be intoxicating. Even though many retirement planning experts recommend waiting until the full retirement age of 67 for Social Security benefits, the average age to retire in America hovers around 62. Sure, it means reduced Social Security payments, but for countless Americans, it allows them to stop working and enjoy their life outside the office.
“People tend to retire three or four years before they expect to,” says David Blanchett, managing director, portfolio manager and head of retirement research for PGIM DC Solutions, the retirement advisory firm. “If you ask people when they will retire, they say around 65, but actually they retire around 62.”
That’s what the Employee Benefit Research Institute found when it surveyed retirees last year for its annual Retirement Confidence Survey. While workers report an expected median retirement age of 65, retirees report a median age of 62 for their actual retirement. Of the retirees who retired early, 31% pointed to a hardship such as a health problem, 32% were forced out of their jobs and 39% said they retired because they could afford to do so.
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People choose to retire at 62 for various reasons, but the right retirement age for you depends on several factors, including your finances, health and emotional readiness.
1. To retire at 62, know your numbers
When it comes to determining if 62 is the right retirement age for you, a big factor in the decision is your financial picture. Retirement can easily last more than twenty years, and if you retire at 62, you’ll get about a 30% reduction in your Social Security payments throughout your lifetime.
At the same time, exiting the workforce at 62 means less time to contribute to any tax-advantaged company-sponsored retirement savings plan such as a 401(k), take advantage of catch-up contributions for older workers or let your balance grow. It also means less time to accumulate savings to live off of in retirement. That’s why it’s important to have a clear idea of how much money will be coming in and going out when you’re retired.
“Step one is to figure out when you might have enough money to retire. You’ll want to consider your retirement lifestyle and understand where your income will come from,” says Sabino Vargas, CFP, senior financial advisor at Vanguard. “Remember, you can expect to spend 70% to 85% of your current income in retirement.”
When determining your financial picture in retirement consider how much debt and monthly expenses you have now and what that will translate into when you are retired. If you have a lot of debt, especially high-interest or credit card debt, work on reducing that before you retire, even if it means working an additional year or so. “While it’s not a requirement for retirement, paying off your mortgage, student loans, credit cards, auto loans, and other debts can help to safeguard your savings and standard of living in retirement,” says Vargas.
Once you determine your monthly expenses in retirement, weigh that against the income you’ll bring in from retirement savings accounts, Social Security, pensions, savings and other reliable income streams. If you think you’ll have enough, then go for it.
2. Get a grip on housing costs
Consider your housing, which accounts for a big chunk of your expenses if you rent or have a mortgage. Do you plan to age in place, downsize or move to a cheaper location? Factor in how that will impact your cash flow.
If you're housing costs are throwing a wrench in retirement, consider retiring in another country. While Costa Rica tops the list, other affordable options include Portugal and Puerto Rico.
3. Plan for some extras
What about hobbies and travel? If you retire at 62 to enjoy your life you’ll want enough money to support your dreams for your newfound freedom. “Idle time is not free, and when you are 62, you are young enough and active enough to do things,” said Dan Sudit, founding partner of investment firm Crewe Advisors. “Those things cost money. Think about what you can afford to do and be generous in your assumption.” Don’t forget about inflation, which can erode your purchasing power when it’s high. It was only in 2022 when inflation was near a 40-year high and while it has come down since then, costs for food, rent and other expenses are still elevated.
4. Health status considerations
Some people retire early because of a health issue that forces them out of the workforce. Others because an illness means a shorter life expectancy and they want to enjoy more leisure time before their illness makes it impossible. Even healthy people who can likely work for many more years remember COVID-19 and are putting a greater value on life outside of work. Either way, if this rings true, don’t forget about health insurance when determining if 62 is the right retirement age for you.
When you retire at 62, you’ll have three years before you are eligible for Medicare, which kicks in at age 65. You’ll need health insurance to cover medical expenses for those in-between years. Without it, the cost of health care can get prohibitive very quickly. A 65-year-old retiring now is expected to spend $165,000 on health care in retirement, according to Fidelity Investments. That’s assuming the retiree is enrolled in a traditional Medicare plan, both Part A and Part B, which typically covers most hospital care and doctor visits, and Part D — for prescription drug coverage. “It can get messy,” says Blanchett of that period between retirement and when Medicare kicks in. “Health insurance is a pretty big issue at 62. You can get coverage through the Affordable Care Act, but you may have to tap your investments early.”
5. Are you emotionally ready for retirement at 62?
Dreaming about long strolls on the beach or hours spent on the golf course is one thing, but doing it every day isn’t a reality for most people, even if you have the financial means. For many people their self-worth is tied up in their careers and when they retire, they lose their sense of purpose. That can spiral into a depression, eroding their quality of life in retirement. That’s why, at any age, you should have a plan as to how you will spend all this free time. You might even consider hiring a retirement coach to help shape the non-financial side of your retirement plan. “Figure out what’s going to be personally rewarding and satisfying," says Crewe. If you already know, then that’s another telltale sign retirement at 62 is right for you.
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