There's no such thing as the perfect age to retire. The decision should hinge on a number of factors -- your savings, your health, and your goals. A recent Transamerica survey, however, reveals that 25% of workers today think they'll end up retiring before the age of 65. That could be problematic for two reasons.
1. Medicare
Medicare eligibility begins at age 65, so anyone who retires prior to that point will need to secure another type of health coverage.That could prove prohibitively expensive. While Medicare itself is not free -- there are premiums to pay for Part B and other components, not to mention deductibles and copays -- buying private insurance on the healthcare exchange could be astronomical. While some people who retire prior to 65 may have the option to retain their former employer coverage through COBRA, that, too, can cost a lot without a company subsidy.
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2. Social Security
Many retirees rely heavily on Social Security to cover their expenses once they leave the workforce. While it's possible to file for Social Security before turning 65 -- seniors can claim their benefits as early as age 62 -- doing so means taking a hit on that income.
Seniors who work and pay into Social Security are entitled to the full monthly benefit based on their lifetime earnings once they reach full retirement age, or FRA. FRA is 66 for those born between 1943 and 1954. From there, it climbs until maxing out at 67 for those born in 1960 or later. What this means is that anyone who files for Social Security before age 65 automatically faces a permanent reduction in benefits.
Can you afford to retire before age 65?
Clearly, there are certain hiccups you'll encounter if you leave the workforce before age 65. But that doesn't mean it can't be done.
First, you may have a plan for covering your healthcare needs. Maybe you've already researched private insurance and see that you can afford it. Or maybe you'll only need COBRA for a handful of months before Medicare kicks in, and that's something you can swing, too.
You may also be sitting on a healthy amount of retirement savings. If so, you may not need to file for Social Security as soon as you retire, thereby letting your benefits sit and grow to avoid a permanent hit. Furthermore, if your nest egg is really robust, you may not need your Social Security benefits at all to pay the bills, in which case it may not matter to you when you file or what those monthly payments amount to.
Retiring early isn't something you should just do on a whim. Make sure you understand exactly what challenges you'll face if you go this route. But if you plan and save accordingly, retiring before 65 doesn't have to hurt you financially at all, despite the aforementioned pitfalls.
