The COVID-19 pandemic is prompting some Americans to opt in to early retirement. An April 2020 report from the National Bureau of Economic Research that analyzed a survey of U.S. households found a “large increase” in the number of those who claimed to be retired — from 53% to 60% of people who were not looking for a job, according to the report.
People were opting for early retirement, the researchers surmised, because seniors can face serious health risks if they become sick with COVID-19 or because they decided to retire after losing their job in the global crisis.
But, even if you’ve hit 60 or beyond, not everybody is ready for full-time retirement.
Here are four things to consider if you’re wondering if early retirement is for you
You’ve been planning for retirement
Not to get morbid, but the average lifespan in the United States is 78 years old. That means, if you’re in your late 50s or early 60s, you could have 20 or more years left to support yourself. You’re only ready to retire early if you’ve been planning for your retirement throughout your adult life.
That means you don’t have debt, including credit card bills, big student loans or a costly mortgage. You should have a retirement plan that might include a pension, 401(k) or an IRA. More savings on top of that is helpful too.
At the same time, you should have a vision for how you want to spend your retirement. Does that include quietly puttering around your house, working on a few hobbies and tending to grandchildren? Or do you plan on exploring the world — or at least the beach a few hours from your house a few times each year?
Prudential has an online retirement calculator to help you do the math to figure out how much money you’ll need to retire.
You’ve considered the pros and cons.
Retirement is a chance to focus on what you want, not tackling tasks in your 9-to-5 every weekday. But early retirement can come with some disadvantages.
It may mean, for example, that you’ll need to start taking your Social Security benefits early. If you do, you could get reduced benefits. Here’s why.
You can start taking Social Security benefits at age 62, but won’t qualify for full benefits until age 66. If you start taking them at age 62, you’ll miss out on 25% of what you could earn if you waited just a few years later. That drops to 20% if you take them at age 63, 13.3% at age 64 and 6.7% at age 65. You can even earn more money if you wait to take them until after the age of 66, though those increases end on your 70th birthday.
You’re covered — with insurance.
Health insurance may not be an issue if your spouse is still working and you’re covered by their plan. But if you don’t have access to health insurance once you retire, you may have few and costly options.
Americans aren’t eligible for Medicare until they turn 65. And the average cost for monthly health insurance for one person runs about $462 or $199 with a government subsidy, according to Health Markets.
Before you consider early retirement, you’ll need to make sure you have your health insurance mapped out.
You won’t miss your work.
For many Americans, their identity is tied up in their work, and retirement can pull them away from long-time co-workers and opportunities to help their community or grow their own skills. One 2019 study found that early retirement can actually accelerate cognitive decline, in part because of the missed opportunities for social engagement and connectedness.
If you’re more than ready to hand in your resignation letter, it may very well be time to leave the workforce. But if you still love the work you do, it may not be time to move into your golden years just yet.
Consumer Education Services, Inc. (CESI) is a non-profit committed to empowering and inspiring consumers nationwide to make wise financial decisions and live debt-free. Speak with a certified counselor for a free debt analysis today.
