When is the right time to retire? It’s a question that depends on your personal needs and circumstances—not to mention your personality and plans for what you’d 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 pluses and minuses of quitting your job at different ages.

Key Takeaways

  • Early retirement requires a significantly greater nest egg.
  • “Catch-up” contributions to retirement accounts can help those 50 and older to grow that egg.
  • Postponing taking Social Security until age 70 makes your monthly benefit 32% more than it will be at your full retirement age.

Early Retirement: Before Age 65

Let’s be honest, leaving your nine-to-five 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. Reports from the U.S. Census Bureau show the average national retirement age in 2019 was 63—64 for men and 62 for women, according to a 2015 report by the Center for Retirement Research. 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. A 2015 paper published by 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. While you’ll become eligible for Social Security at age 62, you won’t qualify for your full monthly benefit amount until years later—for those born before 1955, it doesn’t happen until age 66, and it can be as late as age 67 for those born in 1955 or after. 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. The traditional thinking is that you’ll need 25 times your annual expenses (minus Social Security) in order to avoid outliving your money. 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 get health insurance on your own.

A 2018 report by the insurance brokerage eHealth concluded that the average adult between the ages of 55 and 64 paid $440 in monthly premiums (without subsidies) on an exchange. By contrast, the standard Medicare Part B premium in 2020 is $144.60 a month—and it gets you coverage with a relatively low deductible of $198 a year. To be well-protected, though, you also need to figure in Medigap and your prescription drug coverage.

You can’t get Medicare coverage until you are 65, so an early retirement plan must take into account considerable health care costs.

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 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 use a “catch-up” provision to put an extra $6,500 annually into their 401(k) and an extra $1,000 annually into an IRA. For 2020 that means you can invest up to $33,000 in these plans—$26,000 in a 401(k) and $7,000 in an IRA—if you’re 50 or older. Also, those who wait until they reach 65 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. The upshot: 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. A 2018 report from the National Institute of Retirement Security highlights how unprepared many Americans are for retirement, noting that “four out of five working Americans have less than one year’s income saved in retirement accounts” and “57% do not own any retirement account assets.” The coup de grace? “When all working individuals are included—not just individuals with retirement accounts—the median retirement account balance is $0.” Ouch.

The Bottom Line

Many older people can’t wait for the day when they finally call it quits on their careers. Still, constantly worrying about finances isn’t exactly the way to spend your later years. Before deciding to retire, make sure you have the resources to make the most of this exciting new stage of life.