Among those looking ahead to retirement, many expect to step away from work at age 65, according to the 2023 Retirement Confidence Survey. Although 65 is the anticipated median retirement age, workers report retiring at a median age of 62, the survey found. The disparity indicates that many Americans plan to continue working for more years than they actually do.
It can be hard to accurately predict when you will retire. “The retirement age depends on a number of factors, including financial preparedness, health and personal objectives,” says Michael Callahan, a lawyer and CEO of the Callahan Law Firm in Houston. “Early retirement may result in more leisure time, but it may also compromise long-term financial security. On the other hand, working longer could result in greater financial security, but could also have negative effects on health and quality of life.”
Retirement Expectations and Reality
Other surveys have found gaps between the age workers think they will retire and when they leave the workplace. In cross-sectional survey analyses by the Employee Benefit Research Institute released in 2023, the research showed that historically, at most half of retirees self-report that they retired when they planned to retire. Only 1 in 6, or 16% of those surveyed, retired at the age they expected. On average, retirements took place 4.3 years earlier than anticipated.
[READ: 10 Important Ages for Retirement Planning.]
Unexpected Early Retirement
Oftentimes early retirements are a result of unforeseen circumstances. Common reasons to retire early include a health issue, the onset of a disability or choosing to act as a caregiver for a loved one.
One key consideration for retiring early is health insurance, as Medicare is available at age 65. You may need to look for your own coverage until you reach that milestone.
“Health care exchanges make it much easier to budget for and shop for insurance, and subsidies exist to help underwrite the cost of insurance,” says Matt Bruce, president of Pointer Financial Group in Wauwatosa, Wisconsin. “However, we have seen many early retirees opt to use health care sharing companies to cover short-term health expenses between their retirement and when Medicare is available.” If your spouse is still working, you can check to see if their insurance will cover you.
Consider the financial implications of early retirement as well.
“Early retirees may face a lower Social Security benefit and have to rely more heavily on their retirement savings,” says Kami Adams, retirement income specialist at Creative Legacy Group in LaGrange, Georgia. “Retiring early means more years in retirement, which can increase the risk of running out of money later in life.”
[See: 10 Strategies to Maximize Social Security.]
Forced Out of the Workforce
Among retirees, 31% state they left their job due to changes at their company, according to the 2023 Retirement Confidence Survey. Some people end up in early retirement because they are offered an early retirement incentive package or their skills are out of date for the position. There could also be workplace restructuring such as a downsizing, business closure or reorganization that results in job loss.
After leaving one job, older workers may find it difficult to replace their full salary right away. They might need to retool and tap their networks to get a job that aligns with their experience and area of expertise. For those interested in part-time work, there could be more remote and flexible positions available.
A Fortuitous Early Retirement
There can also be positive reasons workers enter retirement early. Perhaps your investments performed better than expected or you inherited a windfall and were able to retire sooner than planned. In the cases of early retirees, 35% report being able to afford to step away, according to the Retirement Confidence Survey. Some retirees have followed the FIRE movement (Financial Independence, Retire Early), which enabled them to quit work in their 40s or 50s. Doing so could open doors to pursue other activities or spend more time with family members.
[READ: How to Retire in 5 Years]
Aiming to Delay Retirement
Many workers say they are hoping to retire at an older age than current retirees left the workforce. There can be valuable incentives to delay retirement, including a few extra years to collect a salary and avoid tapping your nest egg.
“Delaying retirement can have several benefits, including a higher Social Security benefit, more time to save for retirement and a reduced risk of running out of money later in life,” Adams says. “However, delaying retirement can also mean missing out on the opportunity to enjoy retirement while still in good health.”
You’ll want to weigh all the factors before making a final decision regarding when to quit work. You can then map out a budget that aligns with your retirement goals. Keeping an open mind can be helpful, as you’ll be able to adapt if you end up retiring earlier than planned.
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What Is the Average Retirement Age? originally appeared on usnews.com
Update 05/25/23: This story was previously published at an earlier date and has been updated with new information.
