Any financial advisor will tell you it pays to retire later. But most Americans don’t even make it to age 65 before they leave the workforce.
That’s according to a new study by the Transamerica Center for Retirement Studies, which found that 59% of U.S. retirees stopped working before turning 65. In fact, the median age of retirement was 62.
Catherine Collinson, president of the Transamerica Institute, said the data was disappointing, but not surprising. Transamerica’s research has seen the median retirement age stuck at 62 since 2015.
“It’s very discouraging,” Collinson said. “We were hoping to see the age increase, and it’s not budging.”
In the United States, there are many benefits to retiring later in life. Working longer allows more time for savings to build up, 401(k) balances to rise and Social Security checks to grow.
In fact, 62 is the absolute youngest age at which Americans can receive Social Security, and doing so triggers a 30% cut to the benefit. For seniors born in 1960 or later, full benefits are available at age 67 — and for those who can hold out till age 70, there are additional delayed retirement credits.
To top it all off, Medicare doesn’t kick in until age 65. So if a senior leaves their job before then, they’ll need to cover their own health care expenses, with neither government help nor employer-provided health insurance.
In other words, retiring at 62 is extremely costly — but it appears to be the norm.
“If they’ve cut off their working years by five years, they’ve cut off five years of income, five years of access to employer benefits, five years of credit toward their Social Security benefit, five years for their savings and investments to potentially grow, and their retirement could now last five years longer,” Collinson said. “So that’s less savings that need to last for a longer time.”
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Why are Americans retiring so early? In many cases, they don’t have a choice. Among retirees who left their jobs sooner than planned, Transamerica found that almost half — 46% — did so for health reasons, including disabilities (33%) and ill health (28%).
Work problems also played a major role. Forty-three percent of early retirees stopped working because of an employment issue, including 16% who lost their jobs, another 16% who faced organizational changes and 9% who were pushed out with a retirement buyout.
And then there’s burnout: 14% retired early because of “job unhappiness.” Unfortunately, some financial advisors are very familiar with this scenario, having witnessed it among their clientele.
“I have a number of clients who have retired before 65,” said Michael Carbone, a CFP at Eppolito Financial Strategies in Chelmsford, Massachusetts. “In nearly every case it was simply because they couldn’t take it anymore.”
As a result, most seniors never make it to their target retirement date. Among Transamerica’s respondents, 58% retired sooner than they expected. Only 36% retired when they planned to, and just 6% retired later.
Carbone stressed, however, that early retirement is not necessarily a bad outcome — it just requires more planning.
“I think it can be justified so long as they’re able to live a fulfilling life with both physical and mental stimulation — and if it won’t compromise their financial longevity,” he said. “They must also understand the trade-offs between their financial longevity and potential legacy.”
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Jay Spector, co-CEO of EverVest Financial in Scottsdale, Arizona, echoed this advice.
“Early retirement can be incredibly rewarding, but it requires a comprehensive approach to planning,” Spector said. “From health care to income strategies and long-term financial sustainability, it’s important to address all aspects of an investor’s retirement vision. With the right preparation, early retirement can be the gateway to a fulfilling and meaningful new chapter of life.”
This opens up an important role for financial advisors. Even after a senior has already retired, Collinson pointed out, talking to a wealth manager could illuminate choices they didn’t know they had — such as returning to work part-time or delaying filing for Social Security.
“Retirees still have time to positively affect their financial situation by building their knowledge of personal finance, engaging in financial planning and really understanding what their options are,” Collinson said. “Many may be leaving options on the table or opportunities to optimize their savings simply due to lack of awareness.”
