Early Retirement: The Pros and (Mostly) Cons

Reviewed by Thomas J. CatalanoReviewed by Thomas J. Catalano

Retiring early sounds great to most people. But for many, it’s not possible. If you’re lucky enough to have control over when you retire, it’s worth thinking through the pros and cons before you make any decisions. Even if you can afford to retire early, you might not want to.

Key Takeaways

• Many Americans plan to retire early, before the proverbial age of 65.
• Pros of retiring early include health benefits, opportunities to travel, and starting a new career or business venture.
• Cons of retiring early include a strain on savings, and a depressing effect on mental health.
• There may be ways to chart a middle course: cutting back on work without fully retiring.

Some Pros of Retiring Early

1. It Could Be Good for Your Health

Sleeping in later, getting out in the fresh air and sunshine, and no more gulping meals at your desk—we can all easily imagine how leaving behind the office grind leads to healthier habits.

This isn’t just supposition. A 2002 study of British civil servants, for example, found that retiring at age 60 had no adverse effect on the subjects’ physical health overall. In fact, those with higher-level jobs saw an improvement in mental health, possibly because they were no longer subject to work-related stress (and potentially had better pensions than lower-ranked workers).

Other studies, however, have suggested that retirement can be hazardous to your health, as we’ll get to in the next section.

2. You’ll Enjoy More Time to Travel

Oh, the places you’ll go! Or could go, once you’re no longer limited to the proverbial two-weeks-a-year vacation. Plus, the earlier you retire, the more years you’ll have before health issues begin to limit your mobility.

3. It’s an Opportunity to Start a New Career

If you dream of switching fields or starting your own business, sooner may be better than later. You’ll be a more desirable job candidate to many employers the more years you have ahead of you.

If you want to be your own boss, you’ll have more time to get your new venture off the ground. A business you launch at age 60, for example, could easily keep you intellectually challenged for another 20 years or more.

Some Cons of Retiring Early

1. It Could Be Bad for Your Health

A 2008 analysis from the National Bureau of Economic Research reported that retirement leads to declines in mental health and mobility and increases in other poor health outcomes, such as heart disease and stroke.

While that’s one argument for delaying retirement, those problems aren’t inevitable. The report also concluded that retirees who remained physically active and socially connected were less likely to suffer any ill effects.

2. Your Social Security Benefits Will Be Smaller

The sooner you start to take Social Security, the lower your benefits will be. If you were born in 1960 or later, for example, and you start taking benefits at age 62 (the earliest age at which you’re eligible), your monthly benefits will be 30% less than if you wait until age 67, which the Social Security Administration (SSA) refers to as your “full retirement age.”

For each year you postpone from age 67 to 70, you’ll receive an additional 8% in your monthly benefit. After age 70, there’s no further bonus for delaying.

3. Your Retirement Savings Will Have to Last Longer

If you retire at age 62 and live to 90, let’s say, your Individual Retirement Account (IRA) and other savings will have to cover you for 28 years. You might outlive your savings. If you retire at 70 and live for the same length of time, however, your savings will only have to last for 20 years. Working longer also means you’ll have more years to contribute to a 401(k) or other retirement plan, and the money in your plan will have more time to compound.

“An easy rule of thumb to estimate your retire-ability is to multiply your expected draw on investment portfolios that will supplement Social Security and other sources by 25,” says Stephen J. Taddie, co-founder and managing partner of Stellar Capital Management LLC in Phoenix, Arizona. “If you have that amount of money in your combined accounts, you’re ready to put a pencil to it. If you’re ‘close,’ think twice.”

And don’t assume that living will be less expensive, either. “One common myth is that your expenses decline in retirement,” says Jennifer E. Myers, CFP®, president of SageVest Wealth Management in McLean, Virginia. Myers adds the following:

We seldom find that to be the case for three primary reasons. First, you simply have more time on your hands to enjoy, partake, and spend. Second, as individuals grow older, they tend to outsource more, layering on new expenses. Third, your healthcare expenses logically tend to increase as you age. It’s important to make sure your assets can sustain potential, and perhaps inevitable, growth in spending over your lifetime.

4. You’ll Need to Find Health Insurance

Unless your ex-employer provides it, you’ll have to pay for health insurance on your own until you’re eligible for Medicare at age 65. If you do, be ready for sticker shock: insurance premiums can easily be double or triple what you’re used to paying on your workplace plan.

At the same time, unfortunately, health insurance rates climb as you get older, skyrocketing into four figures monthly after age 55.

5. You Might Get Bored and Miss Working

Many retires have a tough time making the transition from the daily routines of a full-time job to the unstructured life of retirement. They may also miss their former colleagues and yearn to return. Unfortunately, it isn’t easy to get back into the workforce once you’ve left it, voluntarily or otherwise.

A 2012 report by the U.S. Government Accountability Office noted that people over age 55 generally need more time to find new jobs than their younger counterparts do.

A Middle Ground

If you don’t want to retire early for fear you’ll regret the decision, but also don’t want to wait so long that you miss out on the pleasures of retirement, there are ways to have the best of both worlds.

One example: You might try to negotiate a reduced work schedule with your employer and enjoy the life of a retiree on your days off, an arrangement that’s often referred to as “phased retirement.” Or, if circumstances allow, see if you can work from home part of the week—that’ll give you a sense of how isolation and a more fluid schedule suits you.

Finally, take some of those vacation days all at once. Do some of the major traveling to faraway lands you’ve always dreamed of.

What Is Early Retirement?

Early retirement is typically defined as retiring before age 65. This is the age that you become eligible for Medicare.

How Many People Want to Take Early Retirement?

Many of us continue to dream of retiring early. A survey by the reverse mortgage company American Advisors Group found that 52% of Americans plan to exit full-time employment before age 65, with 23% before age 60.

How Long Does the Average Person Live in Retirement?

According to the Social Security Administration (SSA), a 65-year-old woman will live about 20 more years, whereas a 65-year-old man will live about 17 more years. The SSA provides a life expectancy calculator based on your birth date on its website.

The Bottom Line

Deciding when to retire is a complex decision that isn’t just a question of dollars and cents. Your health, family obligations, and individual temperament all figure into it, or at least they should. Perhaps most important is whether you’ve thought through what you plan to do with your retirement years, however many of them lie ahead. As the wise old saying goes, it’s important not just to retire from something but to something. 

Read the original article on Investopedia.