When to retire

Updated: Jul 6

Is it a good idea to retire early?


I was on a fishing excursion recently with a long-time fishing companion who is considerably younger than me. He asked me how life was treating me post-relaunch. He then proclaimed he was hoping to retire at age 55. I had similar ambitions mid-career but waited until my late 50s to make the Big Shift, mostly because I was not quite ready financially or emotionally.


So, in this era of the Great Resignation, if you are not yet at retirement age but are thinking of leaving the workforce, how do you know if it is a good move for you?


What constitutes early retirement?


In the USA, most consider the typical retirement age to be 65, although one can collect Social Security benefits at the age of 62. According to a recent study by the Center for Retirement Research at Boston College, the average retirement age for males is 64.6 years and 62.3 years for females. However, one must reach 65 to be eligible for Medicare and 66 or 67 (depending on the birth year) to be able to collect the full monthly benefit amount from Social Security.


Medical costs in retirement


So my friend who desires to retire early at 55 will need a substantial nest egg to see him through at least a decade before these benefits kick in. As it relates to health care, if he must rely on private insurance, that can be pricey. The average monthly premium through the Affordable Care Act (ACA, aka Obamacare) for a family of two or more in 2020 was $1,152. In my case, I was still earning residuals from my company’s stock plan after I left employment, so my income was too high to be eligible for a subsidized plan. I therefore paid considerably more than this average for my wife and me in 2020. This was a shock, initially, when I first retired because the premium was higher than that while I was employed and I was not prepared for the increased cost related to healthcare coverage.


Waiting to take your Social Security benefits


Then there is the question of when one should begin to take Social Security benefits. If you plan on collecting at the age of 62, then the monthly amount will only be 75% of the full amount you would be eligible to claim at age 66 or 67. If you can wait another few years, the monthly benefit increases by 8% for each year you delay up to age 70. This can mean a 76% greater benefit versus taking Social Security at the age of 62, according to a Boston University professor, Laurence Kotlikoff.


Financial risk of early retirement


The same Boston University professor, also an expert on Social Security, cautions that retiring too early could present a risk that one has not saved enough to cover their financial needs to their ‘maximum age’. And those expenses will depend on one’s relative physical health and financial wealth. Everything I read prior to my relaunch suggested that it is unlikely that one will spend less in the early years of retirement. I figured going into this relaunch phase that I would spend approximately the same as our pre-retirement annual disposable income after savings, and budgeted as such. Three years later, our spending has tracked this budget pretty closely.


Retirement calculator for early retirement


I have written about this topic as it relates not only the financial component, but also the emotional component. There are many situational variables that relate to both and it is important to have realistic expectations in developing a retirement plan. One thing is clear as it relates to my friend’s target age for early retirement, it will take a reasonably large nest egg to fund a decade or more of lifestyle before Medicare and Social Security kick in.

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