Early retirement is a dream of many Americans, and for good reason. After all, who wouldn't want to spend their time doing whatever they want while they're still young?
However, early retirement might not be the best option for everyone. Even if you have saved enough to retire, there are a few other things to keep in mind. We asked three of our experts for reasons not to retire early, and here's what they had to say.
One reason to keep working until age 66 is that it aligns perfectly with what Social Security considers to be full retirement age for those who are retiring right now. Social Security is friendly to early retirees, allowing them to start taking monthly payments as early as age 62. But the trade-off is that if you take Social Security benefits that early, then the Social Security Administration reduces your payout to compensate for the fact that you'll get additional years of benefits upfront.
The boost to your benefits you can get by waiting until age 66 to retire can be larger than you'd think. Based on the average primary insurance amount on which the SSA bases your Social Security benefits, the typical person retiring at age 62 can expect to receive about $1,050 per month. Yet for those who wait until age 66, the average climbs to nearly $1,400 per month. Moreover, you can continue waiting up until age 70 if you'd like to hold out for an even larger benefit.
If you have reason to believe that you'll have a much lower life expectancy than the typical retiree, then waiting until 66 may not be the best move. But with the majority of retirees living well into their 80s, waiting for a bump in your Social Security benefits could pay off for many years.
One thing you need to remember if you plan to retire early is that you may need to pay for your own health insurance until Medicare kicks in at age 65. And while the Affordable Care Act has made health insurance a little more, well, affordable, it can still be a significant expense.
I did a quick search on healthcare.gov, and for a 60-year-old couple in my area, the cheapest "silver" level plan costs $1,125 per month and comes with an $8,000 deductible. A "gold" plan with a $3,000 deductible can be had for $1,327 per month. These premiums add up to $13,500 and $15,924 per year, respectively. That's no small expense.
Of course, if you have a job that will let you keep your health benefits if you retire early (which is relatively common in some public-sector jobs), you don't have to worry about this.
But if you plan to retire early, health insurance is one expense you definitely need to take into consideration. While it doesn't cost as much as it used to before the Affordable Care Act, it can still eat up a good portion of your savings.
Here are two good reasons you shouldn't retire before age 66: a larger retirement nest egg and better health.
Most people's highest-earning years are in their 50s and 60s, so delaying retirement in order to put away a few extra years' worth of savings can mean a much more comfortable retirement. For example, if you delay your retirement from age 62 to age 66, you can contribute a substantial amount to your retirement account and enjoy four more years of compound interest, which will accelerate your returns more than you may imagine.
Say you're earning $60,000 and contributing $9,000 per year, or 15% of your income (most workers should aim to save 10% to 20%). If your retirement savings are $500,000 at age 62, and they achieve modest 5% growth, then your nest egg will grow to $648,000 by the time you retire at age 66. If you instead retired at 62 and withdrew 4% of your savings at the beginning of each year, assuming the same growth rates, you would have just $516,000 at age 66 -- that's 20% less money to last you for the rest of your life.
Further, staying in your job has health benefits. It keeps you busy, connected with other people, and mentally stimulated. The first two are important for your happiness and stress level -- and stress is a big health risk. And while many people assume that retiring from work will be stress-free, the Holmes-Rahe Stress Inventory ranks it as the 10th-most stressful life event. In fact, studies have found that retirees who continue some part-time work after retiring from a full-time job suffer fewer major diseases and have higher cognitive function than people who stop working altogether.
The grass is always greener on the other side, particularly if that grass is that of a well-manicured golf course or beach town. That grass will always be there, though, so if you have the choice, think twice before retiring early.