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5 Reasons Not to Retire Before 66

By Christy Bieber - Feb 10, 2018 at 5:54AM

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One of them has to do with your health.

Just over half of Americans retire between the ages of 60 and 65, making this the most popular age range for retirement. By comparison, just 12% retire between 66 and 69 and just 10% retire in their early 70s. 

Retiring young may happen out of necessity if you can't find a job or aren't physically fit for work anymore. Unfortunately, if you leave the workforce before you're at least 66, the financial implications of this choice could affect your future in profound ways. 

You don't want to jeopardize your retirement by retiring at the wrong age, so before you hand in your notice, be sure to consider these five key reasons why you shouldn't say goodbye to your job so early. 

Alarm clock and money sitting next to a jar full of coins labeled retirement

Image source: Getty Images.

1. Your Social Security benefits will be smaller

If you were born between 1943 and 1954, 66 is considered by the Social Security Administration to be your full retirement age (FRA). That means you can retire and get your standard benefit at 66. For those born in 1955 or later, full retirement age gradually increases; and for anyone with a birth year of 1960 or later, FRA is 67.  

If you retire before FRA, your benefits are reduced. If you retired and claimed benefits at 62, the earliest possible age, you'd receive just 75% of your standard benefit if your FRA was 66. If you delay until age 70, however, you earn delayed retirement credits and you get bigger benefits.

While you need to do the math to determine how many years of higher benefits you'd need to break even after delaying, many financial experts believe it makes sense to work longer to try to get higher guaranteed benefits from the Social Security Administration. 

Benefits may also be smaller if you retire before 66 because you may not have enough years of work to maximize your benefits under Social Security's formula. Social Security considers your highest 35 years of earnings, adjusted for wage growth, when determining benefits. If you haven't worked for 35 years, you'll have years of zero dollars factored in -- so it can make sense to keep working to eliminate those years from your benefits calculation.

If you're earning a much higher income (after adjusting for inflation) in your 60s than you did in your 30s, staying on the job a little bit longer could mean a significant boost both because of delayed retirement credits and a higher average wage for Social Security's formula. 

2. You'll miss out on years of saving

Once you retire from your job, you aren't going to be able to keep contributing to your workplace 401(k), assuming you have one. Retiring early means years of missing out on investing with pre-tax dollars that you can use to help fund your retirement.

Since you're entitled to make an additional $6,000 in catch-up contributions to a 401(k) after age 50, in addition to the $18,500 you're currently allowed to contribute as of 2018, you could lose out on the chance to save up to $24,500 during each additional year that you work -- or more if the annual contribution limits rise, as they often do. You'd also lose out on any employer match your job offers for your contributions.

If you're in your early 60s with close to the mean retirement savings of around $163,000 , working a few years longer to max out your 401(k) and get the full employer match could potentially allow you to almost double the amount you've currently saved -- leaving you with far more money to spend for the rest of your life.  

3. Your savings may be too small to support you

With mean retirement savings of just about $163,000 for families ages 56 to 61, far too many pre-retirees have way too little money.  If you follow the traditional 4% rule for retirement withdrawals -- which may actually still put you at risk of running out of money under current conditions -- you'd have an annual income from investments of just $6,520.  

That's very unlikely to give you enough money to live comfortably, even when combined with Social Security. And retiring when you're young means your savings will need to support you for longer, which means an account balance that is too low is even more problematic. 

By working until you're at least 66, you'll have a few years when hopefully your income is high, and you can use this time to supercharge savings efforts so you don't end up struggling to live with an income close to the poverty level.  

4. You might not be eligible for Medicare yet

When you retire, you need to be prepared to cover your healthcare costs. If you aren't yet 65 and eligible for Medicare, this could mean coming up with thousands of dollars to pay insurance premiums, co-pays, and other costs associated with getting care. 

By waiting, you can qualify for Medicare to control your costs before you retire. While you may still need a lot of money for supplementary policies and care that Medicare doesn't cover, at least you'll have the benefits that Medicare coverage offers. 

5. You may have lots of lingering financial obligations

When you're in your late 50s and early 60s, chances are good you still have a lot of financial obligations.

Americans between the ages of 37 and 51 were the second largest group of home buyers in 2017 and accounted for 28% of all home purchases during that year, according to the National Association of Realtors. If you bought your home after age 37 with a standard 30-year mortgage, you'd probably still owe debt on that home if you retired before 66.

You may also have kids whose college bills you're still paying, and may even still be paying off your own student loans. You don't want to retire with all of this lingering debt if you don't have to, especially if you could work a little bit longer to repay what you owe. 

Waiting until at least 66 to retire is just smart 

With longer life spans, working until at least the age of 66 makes a lot of sense. You'll have more time in the workforce to earn income and get your financial life in order so you can retire with more savings and less debt -- and you'll still hopefully have plenty of happy and healthy years left to enjoy your retirement. 

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