Even though Americans’ net worth still hasn’t recovered from the Great Recession of 2007-2009, many of us continue to dream of retiring early. A survey by the financial services provider TIAA-CREF in early 2014 found that 37% of Americans plan to retire before age 65.

Not everyone will have a choice in the matter, of course. Job loss, health problems or family responsibilities can disrupt the best-laid retirement plans, forcing people out of the workforce sooner than expected. According to a 2014 Gallup survey, the average age at which today’s retirees report they retired is a relatively early 62.

But if you're lucky enough to have control over when you retire, it's worth thinking through the pros and cons before you make any rash decisions. Even if you can afford to retire early, you might not want to.

Some Pros of Retiring Early

1. It could be good for your health. A 2002 study of British civil servants, for example, found that retiring at age 60 had no effect on the subjects’ physical health and that those with higher-level jobs saw an improvement in mental health, possibly because they were no longer subject to work-related stress (and had better pensions than lower-ranked workers). Other studies, however, have suggested that retirement can be hazardous to your health, as we’ll get to in the next section.

2. You’ll enjoy more time for travel. The earlier you retire, the more years you’ll have before health issues begin to limit your mobility.

3. It’s an opportunity to start a new career. If you dream of switching fields or starting your own business, sooner may be better than later. You’ll be a more desirable job candidate to many employers the more years you have ahead of you. And if you want to be your own boss, you’ll have more time to get your business off the ground. A business you launch at age 60, for example, could easily keep you intellectually challenged and out of mischief for another 20 years or more. See Don't Retire Early - Change Careers Instead.

Some Cons of Retiring Early

1. It could be bad for your health. A 2008 analysis from the National Bureau of Economic Research reported that retirement leads to declines in mental health and mobility, and increases in other poor health outcomes, such as heart disease and stroke. While that’s one argument for delaying retirement, those problems aren’t inevitable. The report also concluded that retirees who remained physically active and socially connected were less likely to suffer any ill effects.

2. Your Social Security benefits will be smaller. The sooner you start to take Social Security, the lower your benefits will be. For example, if you were born in 1960 or later and you start taking benefits at age 62, the earliest age at which you’re eligible, your monthly benefits will be 30% less than if you wait until age 67, which Social Security refers to as your “full retirement age.” For each year you postpone from age 67 to 70, you’ll receive an additional 8% in your monthly benefit. After age 70, there’s no further bonus for delaying.

3. Your retirement savings will have to last for more years. If you retire at age 62 and live to 90, let’s say, your IRAs and other savings will have to cover you for 28 years. If you retire at 70 and live for the same length of time, however, your savings will only have to last for 20 years. Working longer also means you’ll have more years to contribute to a 401(k) or other retirement plan, and the money in your plan will have more time to compound.

4. You’ll need to find health insurance. Unless your ex-employer provides it, you'll have to pay for health insurance on your own until you're eligible for Medicare at age 65.

5. You might get bored and miss working. Many retires have a tough time making the transition from the daily routines of a fulltime job to the unstructured life of retirement. They may also miss their former colleagues (sometimes even the boss) and yearn to return. Unfortunately it isn't easy to get back into the workforce once you've left it, voluntarily or otherwise. A 2012 report by the U.S. Government Accountability Office noted that people over age 55 generally need more time to find new jobs than their younger counterparts do.

A Middle Ground

If you don’t want to retire early for fear you’ll regret the decision but also don’t want to wait so long that you miss out on the pleasures of retirement, there are ways to have the best of both worlds. For example, you could do some of the traveling you’ve been saving for your retirement years while you’re still working. Or, you might try to negotiate a reduced work schedule with your employer and enjoy the life of a retiree on your days off, an arrangement that’s often referred to as “phased retirement.”

The Bottom Line

Deciding when to retire is a complex decision that isn’t just a question of dollars and cents. Your health, family obligations and individual temperament all figure into it, or at least they should. Perhaps most important is whether you’ve thought through what you plan to do with your retirement years, however many of them lie ahead. As the wise old retirement cliché put it, it’s important not just to retire from something but to something.

Related Articles
  1. Retirement

    Avoid The Downsides Of Downsizing In Retirement

    Done right, downsizing can still be a good idea. You can have more money, simplify your life, and reduce home-maintenance and utility costs.
  2. Retirement

    Top 5 Critical Retirement Plan Mistakes To Avoid

    These five common retirement mistakes can get you into financial trouble at a point when you most need stability.
  3. Retirement

    Retirement Costs: Men vs. Women

    When it comes to the cost of living in retirement, men and women aren't equal after all.
  4. Retirement

    Peri-Retirement: The New Life Transition

    Use your 30s and 40s to imagine new life options – and try them on for size
  5. Retirement

    Popular Ways To Delay Retirement

    From staying in the workforce longer to finding a part-time job after retirement, there are many ways that retirees postpone retiring completely.
  6. Personal Finance

    Best ETFs For An Early Retirement

    Based on today's markets, which ETFs could you buy in 2013 that'll provide the best opportunity for an early retirement?
  7. Retirement

    Save Early For Retirement If You're A High Earner

    If you earn a high income, there are many ways you can save extra money for an early retirement.
  8. Retirement

    5 Ways To Afford Early Retirement

    Taking an early retirement in today's world is no easy feat, but it can be done. Find out how.
  9. Savings

    5 Steps For Avoiding Retirement Postponement Syndrome

    People who work to organize their finances can avoid postponing retirement and plan for the future.
  10. Savings

    Why Boomers' Retirement Is Different From Their Parents

    Many retirement strategies that worked for previous generations are no longer viable. Find out the best ways to get the nest egg you need now.
  1. What is arbitrage?

    Arbitrage is basically buying in one market and simultaneously selling in another, profiting from a temporary difference. ... Read Full Answer >>
  2. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  3. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  4. What is finance?

    "Finance" is a broad term that describes two related activities: the study of how money is managed and the actual process ... Read Full Answer >>
  5. What items are considered liquid assets?

    A liquid asset is cash on hand or an asset that can be readily converted to cash. An asset that can readily be converted ... Read Full Answer >>
  6. What is comparative advantage?

    Comparative advantage is an economic law that demonstrates the ways in which protectionism (mercantilism, at the time it ... Read Full Answer >>
Trading Center