Anyone can make the decision to retire at almost any age. It all depends on the amount of money that you have saved up through your employment, investments, and other ventures to support the way of life that you want. In the United States, the age of 62 is currently the “golden year” for retirement for many people because it is the first year that you can start to claim your Social Security benefits. That makes it the most popular time to retire if there is enough money available.
There are times when retiring at age 62 is not what you want to do, but it happens because you are sometimes asked to take this step. If you find yourself in this situation, you will face many of the same pros and cons of retirement that everyone else does when they step away from the labor force early.
It is essential to remember that an early retirement plan will only work if your investments earn 7% while inflation stays under 3%. If you have a company pension plan that pays benefits and health insurance costs that remain stable, then retiring at age 62 can feel like an easy decision. If you are not in that type of situation, then these are the key points that you will want to review.
List of the Pros of Retiring at Age 62
1. You can begin claiming your Social Security benefits right away.
If you do not have enough money in your savings account at retirement, then your Social Security income can become a supplement that helps you make ends meet if you retire at age 62. You might choose to look for other work options, but if nothing becomes available, this financial resource allows you to support yourself and your family. There are also health benefits that can come with an early retirement, which means your overall cost differences might create a net gain when you can pursue your dreams instead of being stuck in a job that you really don’t like.
2. You can keep your savings invested for other purposes.
Another benefit to retiring at age 62 is the fact that you can keep your overall savings account invested into conservative funds that can push you toward that 7% return you need. Your Social Security benefits can provide the monthly income that is necessary to make ends meet while you can supplement that amount with whatever the returns are that you earn. It is not unusual to have your nest egg continue to grow in this circumstance if you can avoid touching your saved funds thanks to your early access to your entitlement.
3. You can enjoy your retirement while you are still healthy.
Over 30% of retirees told Nationwide in a survey that their health issues were interfering with their enjoyment of retirement. If you want to take advantage of your financial resources for travel and adventure, then an early retirement at age 62 makes sense. Since some people call it the “new 50,” you’ll have a chance to pursue numerous activities without worrying about your healthcare costs right away. The usual pattern is that you will spend a lot in your early retirement years, less during the middle, and then plenty near the end because of your health. Planning for that now can help you to create lasting memories with your family.
4. You can begin to enjoy the retirement benefits before they erode too far.
Although your monthly check will not be as large if you retire at age 62 instead of waiting until past the age of 70 to make your Social Security claims, it is also true that the pace of this entitlement value is not keeping up with the costs of living that continue to rise. Your raises are calculated on the increase in cost for urban wage earners and clerical workers, so the actual benefit is not an authentic reflection of what your overall needs happen to be as a “pensioner.” You won’t have the same buying power if you wait, even if the checks are a little larger. With this erosion, an early retirement could be a smart decision.
5. You will not die before breaking even with a benefit delay.
For those who choose to delay receiving their Social Security benefits, the higher monthly income can help to offset the steeper healthcare costs which come along deep into retirement. You will also be experiencing over 8 years of not receiving any benefits at all if you maximize your delay in receiving checks. Based on calculations for missed payments, it can take 11.7 years to make up the difference if you wait until age 70.5 to make your Social Security claims. Since the average lifespan is in the high 70s for many age demographics, you may end up missing out on some of the money you could have claimed.
6. You can avoid the uncertainty of the Social Security program.
There are several different accounts available to you when you want to fund your retirement. IRA plans, 401(k) and 403(b) options, along with other tax-advantaged accounts all make it possible to give you some added financial security. If you are thinking about retiring at age 62, then you might consider drawing your Social Security early because there is a lot of uncertainty with that program today.
The current trust fund for the Social Security program is scheduled to run out of money by 2034. That means there might be enough to pay you a 77% benefit instead of a full one when you’re ready to start taking those checks. Claiming them now instead of later can ensure you get paid for the money you originally put into the program.
7. You can pursue goals that you have always had.
When you make the decision to retire at age 62, then you will still have time to pursue specific dreams or goals that you’ve always had. Whether you want to run a farm, write a novel, or tour the country on an extended road trip, the early retirement allows you to stay passionate about what you want to do while you are healthy enough to make progress toward success. Most people regret the things that they did not try or the chances they didn’t take when they approach the end of their life. Deciding to retire early can definitely limit the number of final regrets that you may have.
8. You can try a new career if you want.
If you have always dreamt about starting your own business or switching to a different industry, then an early retirement can help you to achieve this outcome. Retiring sooner rather than later will give you more time to enjoy the years ahead. You will also be a more viable applicant to an employer if you start this change around the age of 62 compared to your 70s. It is not out of the realm of possibility that a company you launch at this age could keep you intellectually challenged for the next two decades.
9. You will have more time to spend with your family.
If you are in a position to retire early at age 62, then there will be more opportunities to spend some time with your family. That could mean that you can help out with the grandkids from time to time, attend sporting events, take family vacations, or even be available for the kids that might still be living at home. There will be time to reconnect with your spouse if your work responsibilities were dragging you everywhere all of the time. With more time outside of the labor force, there are additional moments for your personal relationships to enjoy.
10. You can avoid some of the other early retirement penalties.
If you decide to retire before the age of 60, then you are unable to access the tax-advantaged retirement accounts that you hold. Many 401(k) and 403(b) plans require you to be 59.5 before taking a distribution that won’t incur a tax penalty. The same issue applies to any IRAs that you or your spouse hold. You can agree to adjusted periodic payments based on your life expectancy to reduce this issue a little, but retiring at age 62 completely eliminates the issue of additional taxes and penalties when trying to access your cash.
List of the Cons of Retiring at Age 62
1. Your benefits can be significantly reduced if you decide to retire early.
The most significant disadvantage for Americans who decide to retire at age 62 and claim Social Security is that your benefit will see a steep reduction. The standard benefit that you receive in your government reports is based on the full retirement age (FRA), which is 67 if you were born after 1960. For every month that you claim early from your FRA, you will lose 5/9 of 1% according to data collected by The Motley Food. Deciding to retire immediately at age 62 means losing an additional 5/12 of 1% each month.
That means a benefit of about $1,400 per month at age 67 would become just $983 if you were to retire at age 62 and claim your checks. The reduction is a permanent one unless you take steps to undo the early claim.
2. You will need to find some type of healthcare coverage to protect you.
If you decide to retire early at the age of 62, then you will have 36 months left to wait before you can qualify for Medicare. The only way to avoid this disadvantage is if you qualify for a disability. That means you will want some type of insurance to protect you in case something catastrophic happens. Even if you are healthy, going without coverage could be a gamble that risks your entire retirement savings. You will want to look for a private policy that can help you to bridge these gap years to ensure that your time is as fruitful as possible.
3. You must take care of whatever debts you may have first.
When you retire at age 62, then you will need to make your debt one of your top priorities. If your investments and Social Security are unable to match all of your obligations, then the only option you have available is to earn extra income in some way. If you have significant credit card debt, have a couple of years left on your mortgage, or have some medical bills that are weighing you down, then it might be better to delay your retirement until you have more financial freedom available.
4. You might harm your overall health by retiring at age 62.
Although many people experience health benefits by escaping the labor force at an earlier age, retiring at 62 is not the right choice for everyone. The National Bureau of Economic Research found that people who retire early face an increase in risk factors for mental health and mobility declines. There are increases in other risks, such as stroke and heart disease, which occur because of these circumstances as well. The best way to avoid this disadvantage is to remain physically active, maintain social connections, and make efforts to volunteer in your community whenever possible.
5. You must make your retirement savings last longer.
If you decide to retire at the age of 62, then you may have 8-15 years of additional savings that you must consider having stored and ready to access. Your retirement savings must have enough to cover the expenses of early and late-stage retirement decisions. If you only have enough to last you for 10 years, then you might find it difficult to maintain your way of life by the time you reach your 72nd birthday. Working longer gives you more chances to make catch-up contributions to your IRA and 401(k) or similar plan so that you can have more funds to compound before you’re ready to stop working for good.
6. You must plan for your expenses to increase instead of decrease.
One of the most common myths about retirement is that there is an expectation that your expenses will decrease once you stop working. That doesn’t happen for three primary reasons.
- You have more time on your hands, which means there are more activities that you will want to do each day.
- Older individuals tend to outsource more of their needs than younger people, which creates an additional cost to consider.
- Your healthcare expenses will continue to increase as you age.
If you do not plan for these changes to your income structure early on, then retiring at age 62 is not the correct decision to make. You must make sure that your assets can sustain the inevitable growth in your spending that will occur as you age.
7. You might get bored with your retirement.
Because of changing economic circumstances, many older workers find themselves still being active in the labor force. Doris Collins gave an early retirement a try, stepping down from her post as an HR executive at a financial services company in Virginia. According to AARP, Collins became concerned about her shrinking retirement funds after the recession years in 2008. At age 70, she went back to work full-time as an HR director at a 1,600-student consortium in DC charter schools. She works up to 10-hour days, enjoys an 8-minute commute, and has fun every day.
The reality of an early retirement is that some people enjoy working so much that their version of retiring is to find a different job. Boredom can set it rapidly for some people. By 2022, 32% of workers in the 65 to 74 age demographic are expected to be participating in the labor force. For those above the age of 75, the rate is expected to jump from 5% to 11%.
8. You could see limits placed on your retirement contributions.
Most employers today contribute to the retirement plans of their workers. Even small matching programs can make a significant difference in what you can use after leaving the labor force. If you have a 401(k) in your possession, then there is no way for you to make new tax-deferred contributions to that plan. When there is no earned income, then you cannot contribute to an IRA either. You may find that even a part-time job is a better option at age 62 than a full retirement because it can help you to bridge those last few years better before your FRA without requiring you to be working 40+ hours per week to make ends meet.
A Final Consideration for the Pros and Cons of Retiring at Age 62
If you are ready for a change, then retiring at age 62 might be the correct decision to make. You can have a successful retirement if there are ways to bridge your healthcare insurance gaps, supplement your income with savings and investments, and maybe hold off on your Social Security claim for as long as possible. You might also find that the idea of retirement doesn’t suit your personality well, and then decide that staying at work is the best decision you could make.
The pros and cons of retiring at age 62 can help you to plot a course toward your next dream or goal. It is also important to remember that if your current job provides intellectual challenges that you enjoy, then it might be better to keep working if possible. Those who remain employed during the later years of life don’t view themselves as being old. They recognize that there are still skills that they can contribute to the labor force, allowing them to maintain positive levels of self-esteem.
About the Author of this Article
Natalie Regoli is a seasoned writer, who is also our editor-in-chief. Vittana's goal is to publish high quality content on some of the biggest issues that our world faces. If you would like to contact Natalie, then go here to send her a message.