If you want to retire at 62, join the crowd — the thought of so much freedom can be intoxicating.
Even though many retirement planning experts recommend waiting until the full retirement age of 67 for Social Security benefits, the average age to retire in America hovers around 62.
Sure, it means reduced Social Security payments, but for countless Americans, it allows them to stop working and enjoy their life outside the office.
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“People tend to retire three or four years before they expect to,” says David Blanchett, managing director, portfolio manager and head of retirement research for PGIM DC Solutions, the retirement advisory firm. “If you ask people when they will retire, they say around 65, but actually they retire around 62.”
That’s what the Employee Benefit Research Institute found when it surveyed retirees last year for its annual Retirement Confidence Survey.
While workers report an expected median retirement age of 65, retirees report a median age of 62 for their actual retirement.
Of the retirees who retired early, 31% cited a hardship, such as a health problem, 32% were forced out of their jobs and 39% said they retired because they could afford to do so.
People choose to retire at 62 for various reasons, but the right retirement age for you depends on several factors, including your finances, health and emotional readiness.
Want to join them? If you can answer these six questions, you may be on your way to retiring at 62.
1. Do you know your numbers?
When it comes to determining if 62 is the right retirement age for you, a big factor in the decision is your financial picture.
Retirement can easily last more than twenty years, and if you retire at 62, you’ll get about a 30% reduction in your Social Security payments throughout your lifetime.
At the same time, exiting the workforce at 62 means less time to contribute to any tax-advantaged company-sponsored retirement savings plan, such as a 401(k), take advantage of catch-up contributions for older workers, or let your balance grow.
It also means less time to accumulate savings to live off of in retirement. That’s why it’s important to have a clear idea of how much money will be coming in and going out when you’re retired.
“Step one is to figure out when you might have enough money to retire. You’ll want to consider your retirement lifestyle and understand where your income will come from,” says Sabino Vargas, CFP, senior financial advisor at Vanguard. “Remember, you can expect to spend 70% to 85% of your current income in retirement.”
When determining your financial picture in retirement, consider how much debt and monthly expenses you have now and what that will translate into when you are retired.
If you have a lot of debt, especially high-interest or credit card debt, work on reducing that before you retire, even if it means working an additional year or so.
“While it’s not a requirement for retirement, paying off your mortgage, student loans, credit cards, auto loans and other debts can help to safeguard your savings and standard of living in retirement,” says Vargas.
Once you determine your monthly expenses in retirement, weigh that against the income you’ll bring in from savings, Social Security, pensions and other reliable income streams. If you think you’ll have enough, then go for it.
2. Is there a plan to put your money to work?
If you’ve done your job and have saved enough money to retire at 62, the next step is to make sure you have a plan in place to put that money to work, says Dan Sudit, founding partner of investment firm Crewe Advisors.
“From the day you started working until the day of your retirement, you have been working for your money; now it's time for the reverse. Let the money start working for you,” he says.
If your money is in more growth-oriented investments, Sudit says it's time to shift into a more balanced portfolio in which some of the assets are generating income. That could come from dividend-paying stocks or funds, bonds, real estate, preferred stocks or other asset classes that generate income.
If you haven't spoken to a financial adviser, you may want to do so before you retire. He or she can help you come up with a plan to help your money generate income in a tax-friendly way. “Your investment mix should be different when you're relying on the assets,” he says.
3. Do you have a grip on housing costs?
Your housing accounts for a large amount of your expenses, whether you rent or have a mortgage, which is why it's important to have a plan for how you'll live when you retire. After all, that will have a big impact on your cash flow.
Do you plan to age in place, downsize or move to a cheaper location? Decide before you retire and factor that into how it will impact your cash flow.
If your housing costs are throwing a wrench in your retirement plan, consider retiring in another country, city or state. While Costa Rica tops the list, other affordable options include Portugal and Puerto Rico.
4. Have you planned for extras?
Retiring isn't the end of you're life, it's your next chapter, and that next chapter is going to cost money. If you retire at 62 to enjoy your life, will you have enough money to support your dreams for your newfound freedom?
“Idle time is not free, and when you are 62, you are young enough and active enough to do things,” said Sudit. “Those things cost money. Think about what you can afford to do and be generous in your assumption.”
Don’t forget about inflation, which can erode your purchasing power when it’s high.
5. Do you know how you'll pay for health care?
Some people retire early because of a health issue that forces them out of the workforce. Others retire early because an illness means a shorter life expectancy, and they want to enjoy more leisure time before their illness makes it impossible.
Even healthy people who can work for many more years remember COVID-19 and are putting a greater value on life outside of work. Either way, if any of this rings true, don’t forget about health insurance when determining if 62 is the right retirement age for you.
When you retire at 62, you’ll have three years before you are eligible for Medicare, which kicks in at age 65. You’ll need health insurance to cover medical expenses for those in-between years. Without it, the cost of health care can get prohibitive very quickly.
A 65-year-old retiring now is expected to spend $172,500 on health care in retirement, according to Fidelity Investments' most recent report. That’s assuming the retiree is enrolled in a traditional Medicare plan, both Part A and Part B, which typically covers most hospital care and doctor visits, and Part D, for prescription drug coverage.
“It can get messy,” says Blanchett of that period between retirement and when Medicare kicks in. “Health insurance is a pretty big issue at 62. You can get coverage through the Affordable Care Act, but you may have to tap your investments early.”
6. Are you emotionally ready for retirement at 62?
Dreaming about long strolls on the beach or hours spent on the golf course is one thing, but doing it every day isn’t a reality for most people, even if you have the financial means.
For many people, their self-worth is tied up in their careers and when they retire, they lose their sense of purpose. That can spiral into a depression, eroding their quality of life in retirement.
That’s why, at any age, you should have a plan as to how you will spend all this free time.
“I’ve met so many people over the years that retire at 60 or 62 that don’t know what they’ll do (when they retire),” said Sudit. “Would you ever approach any other aspect of your life the same way?”
Sudit says it's critically important to visualize what retirement looks like at least in the first year and hopefully beyond that before leaping. “You have to start contemplating what your days look like,” he says.
7. Do you have a decumulation strategy in place?
We spend our working years diligently planning and saving for retirement, but when it comes time to actually spend that money, we freeze.
We know the balance of our accounts and have a general idea of monthly expenses, but that’s where the planning often stops. We haven’t figured out how much we can realistically withdraw.
This lack of planning can seriously hurt us. Without a withdrawal plan in retirement, you may outlive your money, or your money may outlive you.
Take Required Minimum Distributions, or RMDs. If you have a traditional 401(k) or IRA, you’re required to start taking them when you turn 73. Depending on your total balance, that mandatory distribution can suddenly trigger a big tax bill. If you had planned your withdrawals in the years leading up to that deadline, you could have paid less in taxes overall.
Forge your path to retirement
When it comes to retiring, there is no magic number or perfect age to stop working. It's a unique decision based on your own circumstances. Some may bristle at retiring at 62, but for you, it may be all you can think about.
If you plan for it and take into consideration things like health care and longevity, you can turn your dream of retiring at 62 into a reality.
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