6 Reasons Retiring at 62 Can Be More Expensive Than People Expect

To most people, retiring at 62 sounds like a dream. After all, many people are working past age 65, so retiring at 62 sounds incredibly appealing. However, there are many additional costs that people don't consider if they want to retire at 62. These include reduced Social Security income, a lack of Medicare eligibility, and more.

Essentially, there is a gap many retirees face between ages 62 and 65. The expenses that this gap creates may not be financially worth it for many people, even if they're emotionally ready to stop working. Here is more information about the costs to consider if you want to make retiring early part of your retirement plan.

Claiming benefits at 62 will reduce your monthly income

Those who retire at 62 often do so because that is the age they can first claim Social Security. However, if you decide to claim Social Security at age 62, it can reduce your monthly benefit by as much as 30%. 

Although you will get cost-of-living increases each year, you will never get as large a check as you would if you waited until full retirement age at age 67.

Retirees cannot get Medicare until age 65

Retirees can apply for Medicare when they turn 65. This enables them to pay for many health care costs. 

However, if someone retires from the workforce at age 62, they will likely need to purchase private health insurance until their Medicare eligibility begins. Retirees may have to purchase health insurance through the marketplace or pay for an expensive COBRA plan through their former employers.

A retirement account will have to last much longer

People are living longer than ever, and many people will need their nest eggs to last more than 30 years. 

Retiring at age 62 means that your retirement account needs to be much larger to cover three to four extra years of health insurance, lifestyle bills, and housing costs. Even someone who lives frugally will need a significant amount in their retirement account to cover the extra years.

Early retirees lose out on employer matches and catch-up contributions

If a worker has access to employer matches and a 401(k), retiring early may result in the loss of thousands of dollars in employer-matched retirement contributions. 

Additionally, those aged 60 to 63 can make super catch-up contributions. Retirees in that age bracket can contribute an extra $11,250 every year on top of the typical 401(k) maximums. So, someone who retires at 62 misses out not only on a full year of 401(k) contributions but also on a year of super catch-up contributions.

Workers have less time to recover from market downturns

The first few years of retirement are the most important for developing a retirement withdrawal strategy. If someone retires during a turbulent or down market, there's a risk called sequence of returns risk. This means that if someone withdraws their money early in retirement during a down market, it can negatively impact their returns for decades. So, retiring at 62 during a down market can be detrimental to a portfolio's long-term prospects.

Those who work longer can carefully plan when they will retire based on market performance. However, someone who retires early may find it challenging to re-enter the workforce if their portfolio is depleted.

Those with pensions may have reduced income

For retirees with pensions, retiring early may have downsides. For example, their pension check may be smaller. Additionally, there may be penalties for retiring before their pension plan allows. 

Of course, each employer that offers pension plans has different policies. Workers can request pension estimates and guidance from their Human Resources department to compare monthly payments of retiring early and retiring a few years later.

Consult with a financial advisor to discuss early retirement

If you're wondering whether retiring early is right for you, make an appointment with a financial advisor. 

A financial planner can review your overall portfolio, personal finances, and lifestyle goals, and discuss your retirement plans. Then, they can take a customized look and make recommendations on whether or not your portfolio or pension can financially sustain you leaving the workforce earlier than planned.

Bottom line

While many people dream of retiring early, the reality is that it's a costly move. That doesn't mean retiring early is impossible. It simply means that retiring at 62 will require a larger financial cushion than living on just Social Security. It also means that retirees will be giving up some benefits, namely employer-sponsored health insurance and work benefits, like retirement matches. 

So, if you are considering retiring early, make sure to research your options ahead of time to ensure it's the best financial choice for you.

You May Also Like

$200 Bonus + Up to 5% Cash Back

Earn a $200 bonus after spending $500 on purchases in your first 3 months from account opening. Member FDIC

SPONSORED

23 Ways To Get Money Without Getting A Second Job

By FinanceBuzz Editors

How To Save Money on Car Insurance: 12 Ways to Lower Rates

By Elyssa Kirkham

10 Things Seniors Born Between 1941-1969 Could Take Advantage Of

By FinanceBuzz Editors

19 Dumbest Things Smart People Waste Money On

By Team FBZ

7 Moves If You Want to Stop Living Paycheck to Paycheck

By FinanceBuzz Editors

7 Clever Ways to Crush Your Debt

By FinanceBuzz Editors

Save Money and Get Huge Discounts on Everyday Purchases

AARP Benefits

• Huge discounts on travel, groceries, prescriptions and more
• Access to financial planning resources and health tools
• Join AARP and get 25% off with automatic renewal

Become a member now!

---

Subscribe Today

Unlock the Best Banking Deals and Bonuses

From high-yield savings accounts to cashback checking and sign-up bonuses, we bring you the best banking offers to grow your money smarter.

or

SEE TOP BANKING OFFERS →

By submitting this form you agree to receive emails from FinanceBuzz and to the privacy policy and terms