There’s an increasing trend in the United States of individuals wanting to retire earlier than the traditional age of 67. With many Americans having recently received their IRS tax refunds, now is a prime time to reflect on retirement timing and its implications.
While the allure of retiring early is undeniable—think about no more alarm clocks or stressful commutes—it’s essential to recognize that retiring and claiming Social Security benefits are distinct decisions. You have the freedom to stop working whenever you choose, but filing for Social Security can significantly impact your monthly benefits. For instance, if your full benefit at 67 is projected to be $2,000, claiming at 62 would reduce it to around $1,400, resulting in a substantial 30% decrease that remains for life.
Some individuals may find this acceptable, either due to sufficient savings or a desire for leisure time. However, others may opt to retire early but delay claiming Social Security, using savings, a 401(k), or gig work for financial support during these transitional years. This approach often offers greater control over finances and benefits.
Those who retire early should be cautious about working while claiming Social Security prior to their full retirement age (FRA). In 2025, earnings over $22,320 will lead to a reduction of $1 in benefits for every $2 earned above this threshold. This could result in unexpected decreases in monthly checks. Thankfully, any withheld funds are not permanently lost; the Social Security Administration (SSA) recalculates benefits at FRA, but this adjustment process can be lengthy.
To make an early retirement successful, a solid plan is crucial. First, aim to delay Social Security claims as long as possible, up to age 70, as this will increase monthly benefits. Second, find ways to cover living expenses with savings, pensions, or part-time work to bridge the gap until claiming benefits. Additionally, consider healthcare needs, as Medicare only begins at 65. If one retires at 60, they will need to plan for coverage during those intervening years.
It’s also important to ensure accurate reporting of earnings, as Social Security calculations are based on the highest 35 earning years. Early retirement can leave gaps if not accounted for, affecting future benefits.
Overall, while early retirement can be a fulfilling option, it requires careful preparation. Engaging with a financial planner or using SSA’s online tools can help navigate the complexities involved, ensuring that individuals make informed decisions that align with their long-term goals. With the right strategy, retiring early can lead to a rewarding life phase.