Please ensure Javascript is enabled for purposes of website accessibility

4 Reasons You Might Struggle If You Retire in Your 50s

By Maurie Backman – Jan 12, 2022 at 5:18AM

Key Points

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

You might think you're OK to retire in your 50s, but make sure you know what you're getting into.

A lot of people aim to retire early. And for you, that could mean retiring well before your 60th birthday arrives.

It's more than possible to retire in your 50s if you save aggressively throughout your career and invest your savings wisely. But be careful, because retiring in your 50s also means facing these notable challenges.

1. You won't have access to your Social Security benefits

The earliest age you can sign up for Social Security is age 62. Filing at that age will result in a reduced benefit, but it's an option many seniors take. However, if you retire in your 50s, you may have to go years without having access to income from Social Security.

A smiling person riding a bike.

Image source: Getty Images.

Furthermore, your Social Security benefits will be calculated based on your earnings during your highest-paid 35 years in the workforce. For each year during that top 35 that you don't have an income on record, you'll have a $0 factored into your benefits equation. If you retire in your 50s, you may not end up having 35 years of earnings to base those benefits on, resulting in less money from Social Security once you are eligible to claim it.

2. You may not have access to your retirement savings

It makes sense to sock money away in an IRA or 401(k) plan due to the tax benefits involved. But the downside to using one of these plans is that generally, you can't withdraw your money penalty-free until you reach age 59 1/2.

If you're retiring in your 50s, it may be too soon to access the money you've socked away. That means you'll need to tap a different income source, like a brokerage account. And while that may be doable, it might also mean having a more limited income your first few years of retirement.

3. You'll have to wait to sign up for Medicare

Medicare eligibility doesn't begin until age 65. If you retire in your 50s, you'll need to cover the cost of health insurance out of pocket. That could prove expensive, especially if you're retiring at a time when you don't have access to Social Security or your retirement plan.

Now if you're retiring in your 50s but are married to someone who's still working and has group health insurance, you may be eligible to get on that plan, and at an affordable price tag. But if you're single and are retiring in your 50s, run the numbers carefully to make sure you can really swing the cost of health coverage.

4. You may end up with a longer retirement than expected

You may decide to retire in your 50s with the expectation that you'll live until your late 70s or early 80s. But Americans are, on a whole, living longer these days. You may end up living until your mid-80s, late 80s, or even beyond. And retiring too soon could therefore mean depleting your nest egg prematurely and not saving enough money to cover your costs later in life.

This especially holds true if you don't manage to work 35 years, and therefore end up with a lower Social Security benefit. Unlike your savings, Social Security lasts for life. But if you get stuck with a less generous monthly benefit, it won't do you as much good.

Retiring in your 50s is a move that could very well work out for you. But before you take that leap, consider the pitfalls you might encounter. You may decide to keep working into your early 60s instead to both grow your Social Security benefits and give your savings an added boost. Doing so could make for a much easier time financially later in life.

The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.