When to Retire: The Pros and Cons of Different Ages

When is the right time to retire? It’s a question that depends on your personal needs and circumstances—not to mention your plans for what you’ll do instead. We’ve all had days when we’re prepared to hand our boss a resignation letter and lead the good life of a retiree. While leaving the workforce early might sound like paradise, it can be a big mistake if you’re not financially ready to live without a paycheck. Here are some of the pros and cons of quitting your job at different ages.

Early Retirement: Before Age 65

Let’s be honest, leaving your job can have some nice perks. By the time some workers reach their 50s and early 60s, they’re starting to feel burned out, so retiring before the traditional age of 65 can feel invigorating. Men retire at an average age of 64.6 years, while for women, the average retirement age is 62.3 years. So whether it’s traveling, taking up new hobbies, or simply finding a part-time job with less stress, it’s your opportunity to recharge.

While there is research to show that working longer keeps you healthier and happier, there’s also evidence for the opposing view. The National Bureau of Economic Research, for example, found that “retirement improves both health and life satisfaction,” in part by factoring in the number of people who are forced to retire due to health issues. However, there’s a major caveat here. Relatively few people have the financial resources to support an extended retirement.

What age can you retire?

The age at which you can retire and collect Social Security benefits and the age at which you should retire aren’t necessarily the same. While you become eligible for Social Security at age 62, you don’t actually qualify for your full monthly benefit amount until a few years later. For those born between 1943 and 1954, it doesn’t happen until age 66. For anyone born after that, the age increases in two-month increments (in 1955, for example, full retirement age (FRA) is 66 plus two months) up to age 67 for anyone born in 1960 or later.

If you claim benefits at 62, you only get 75% of the full amount, which makes up for the fact that you’ll be getting checks for a longer period of time. The benefit for your spouse takes a hit as well. They will only get 35% of your full retirement amount, compared to 50% if you wait until at least 66.

Chances are that you’ll need a large nest egg to supplement your Social Security funds, especially if you hang it up very early. And the earlier you retire, the more you’ll need. Keep in mind, too, that you won’t be eligible for Medicare until you reach age 65, so you’ll almost certainly face steep out-of-pocket costs if you have to purchase health insurance on your own.

An individual applying for health insurance that complies with the Affordable Care Act (ACA) pays an average of $456 per month in premiums. By contrast, in 2022 the standard Medicare Part B premium is $170.10 per month (up from $148.50 in 2021), and it gets you coverage with a relatively low deductible of $233 a year (up from $203 in 2021).

To be well-protected, though, you also need to figure in your prescription drug coverage and perhaps Medicare Advantage. Prescription drug coverage (Medicare Part D) premiums average $33 a month in 2022 (up from $31.47 in 2021). Medicare Advantage (Part C) premiums average $19 a month in 2022 (down from $21.22 for 2021).

Normal Retirement: Ages 66 to 70

For many, the upper 60s is the golden mean of retirement timing—you’re old enough to have built up a nice financial reserve and young enough to enjoy your job-free years. The fact that you’ll get your full Social Security payment at age 66-67 can make a huge difference, especially if you’re relatively healthy and likely to have an average, or longer-than-average, retirement.

Waiting also gives you a few extra years to shore up your tax-advantaged investment accounts. Investors who are at least 50 years of age can make a catch-up contribution to their 401(k) or IRA. For 2021 and 2022, those 50 or older can contribute $7,000 to a traditional IRA or Roth IRA. If you use a 401(k) to save for retirement, you can defer up to $26,000 of your salary in 2021 ($27,000 in 2022) once you reach the age of 50.

Also, waiting until you hit 65 means that you are eligible for Medicare, which is typically a fraction of the cost of individual insurance plans for older adults.

Late Retirement: Age 70 and Older

If you love what you do for a living, the advantages of working into your 70s are readily apparent. For everyone else, a protracted career might sound like the last thing you’d ever want.

Nevertheless, consider the advantages. For one, you’ll have more time to bulk up your savings. You’ll also benefit from the highest possible Social Security payout. Benefits increase on a prorated basis until you reach age 70 when they’re 132% of your full amount if you were born between 1943-1954. And if you were born in 1960 or later, your benefit would increase by 124%.

The upshot is that if you plan well, you’ll have more money to do the things you truly love, and you’ll have fewer worries about outliving your assets.

Of course, delaying retirement isn’t always a choice, for a variety of reasons. Research published by Northwestern Mutual in 2021, for example, found that the economic impact of the COVID-19 pandemic has changed the retirement plans of many Americans. Almost a quarter (24%) plan to retire later than previously expected.

The Bottom Line

Many older people can’t wait for the day when they finally call it quits on their careers and retire. Still, constantly worrying about finances isn’t exactly the way to spend your later years. That is why it’s important to consider when you should actually retire versus the age at which you are eligible to collect retirement benefits. Before deciding, make sure you have the resources to make the most of this new stage of life.