For many older Americans, 65 is a pivotal age, for better or worse. The downside, of course, is that nobody likes to think about getting older. The plus side, however, is that 65 is often the age at which senior discounts kick in, and who doesn't love saving money on food, entertainment, and the like?

In fact, reaching 65 in America is basically akin to hitting the senior-citizen threshold, which is why many folks assume that it's the ideal age to retire. But while retiring at 65 makes sense for some people, it's actually too early for a large number of Americans.


We're living longer

There was a time when 65 was considered old age; but today, most healthy 65-year-olds have many more years to look forward to. The Social Security Administration says that the average 65-year-old man today can expect to live until age 84.3, while the average 65-year-old woman can expect to live till 86.6. By comparison, in 1990, the life expectancy for a 65-year-old was 80.3 for a man and 84.6 for a woman. Though this may not seem like a huge jump, it does tell us that life expectancies are going up, and with that comes the challenge of saving enough to finance a longer retirement.

The good news is that, once you start taking Social Security, you're able to continue collecting benefits for as long as you live -- so whether you make it to 80, 90, or 110, you can count on those monthly payments. The bad news is that many retirees can't survive on Social Security alone.

Social Security is only designed to replace about 40% of pre-retirement income. Most people need at least 70% of their pre-retirement income once they're no longer working, yet many fail to save adequately to bridge that gap. And the longer your retirement, the harder it'll be to stretch whatever money you've managed to save.

This is why retiring at 65 is not a wise move for those who fail to save for retirement independently. Currently, the average monthly Social Security benefit is $1,341 -- not enough for most of us to live on. Now, let's say you're 65, you want to retire this year, you've managed to save $50,000 in a 401(k), and you expect your investments to generate an average annual return of 4% in retirement. What this means is that, over the course of a 20-year retirement, you'd be able to withdraw roughly $300 a month from your savings without running out of money.

But what happens if you live past 85? Will your savings be enough to support a reasonably comfortable lifestyle? In our example, living till 90 would leave you with $40 less per month to withdraw from savings, which makes a difference on a fixed income. Spending a few extra years in the workforce is a good way to stretch your retirement savings, and pad your balance.

Work longer, save more

You may not think that working two more years would have a significant impact on your financial health in retirement, but here's how that decision might play out. Imagine you're able to put away an extra $5,000 a year, so that by the time you retire at 67, you have a savings balance of $60,000. Assuming you live till 85, and see an average annual 4% return on your investments; you'd be able to withdraw close to $400 a month in retirement -- $100 more than in our previous scenario.

Don't short yourself on Social Security

Another reason not to retire at 65? You'll lower your monthly Social Security benefit, and that reduction will last for the rest of your life. Let's say your full retirement age is 66, but you retire at 65. Claiming your benefits a year early will result in roughly a 6.67% reduction.

If your full monthly benefit amount is $1,500, collecting at 65 knocks that payment down to $1,400, which can make a big difference in retirement. On the flip side, if you hold off on collecting Social Security till age 67, you'll increase your monthly benefit to $1,620, and that extra $120 a month is yours for as long as you live.

Of course, there are scenarios where retiring at 65 is a perfectly smart idea. If you've saved well for retirement and aren't relying on Social Security to cover your living costs, it makes sense to stop working while you're young enough to enjoy some of the money you've socked away.

But if you're behind on savings, and healthy enough to keep working, it pays to hold off on retirement for another year or so. Reaching 65 is indeed a significant milestone; but in the grand scheme of retirement, it's actually not that old at all.