The average retirement age in the United States is shifting. While most workers plan to retire at 67, surveys reveal that many are actually retiring earlier, with 62 being the average age.
This trend is significant because it influences the amount of Social Security benefits retirees will receive and may have a lasting financial impact.
Why Are People Retiring Early?
There are various reasons why Americans are choosing early retirement, and health is one of the top factors. Around 38% of early retirees cite health problems or disabilities as the reason they left the workforce before their planned retirement age.
Another 14% of early retirees say they were laid off, highlighting the role the job market plays in these decisions.
For others, family circumstances or unforeseen financial changes can force an earlier retirement than anticipated. While some may have saved enough money to comfortably retire ahead of schedule, the majority are pushed into it by necessity, and this can lead to financial challenges.
The Financial Challenges of Early Retirement
Many people who retire earlier than planned face financial difficulties. A major issue is that retirees often start withdrawing from their retirement savings sooner than expected. This means their savings have to last longer, which can deplete retirement accounts quicker than anticipated.
The average American retiree has accumulated about $269,078 for their golden years, which falls far short of the recommended goal of $572,000.
If someone starts receiving Social Security benefits before reaching the full retirement age of 67, their monthly income will be permanently reduced. Moreover, those who retire before the age of 65 may face gaps in healthcare coverage before becoming eligible for Medicare.
Must Read: Big News for U.S. Retirees: COLA Increase Boosts Social Security Benefits!
The Long-Term Impact on Social Security Benefits
Retiring early comes with long-term consequences, especially when it comes to Social Security benefits. If you decide to claim benefits before reaching your full retirement age, your monthly payments will be reduced. This reduction is permanent and can significantly affect your financial stability in the long run.
For example, under current laws, workers born in 1972 who retire at 62, instead of their full retirement age of 67, will receive about 30% less than their full Social Security benefits. If the full retirement age is raised in the future, as some proposals suggest, the reduction for early retirees could be even greater.
Will an Increase in Retirement Age Impact Future Retirees?
Proposals to raise the full retirement age (FRA) could lead to even greater reductions in Social Security benefits for those who retire early. According to the Congressional Budget Office (CBO), increasing the FRA would reduce the overall amount of lifetime Social Security benefits for affected workers.
If the retirement age rises, workers who choose to retire early would face deeper reductions in their monthly payments. Conversely, those who work past the new retirement age could receive larger benefits, but this also means working longer than originally planned.
Must Read: Upcoming Social Security Change: What Retirees Must Know Now?
How to Prepare for Changes in Retirement Plans?
Given the uncertainties surrounding retirement age and Social Security benefits, financial advisors recommend periodically reviewing your retirement plan. Planning for early retirement, even if you don’t expect it, can be a wise move.
Increasing your savings, diversifying your investments, and creating a backup plan are essential steps to ensure financial security during your retirement years.
Whether you plan to retire early or work until your full retirement age, staying informed about changes in Social Security policies and the economy is crucial. Consulting with a financial advisor can help you better understand your options and prepare for unforeseen events.
Eliot Pierce is a dedicated writer for ChiefsFocus.com, covering local crime and finance news. With a keen eye for detail and a passion for storytelling, Eliot aims to provide his readers with clear and insightful analysis, helping them navigate the complexities of their financial lives while staying informed about important local events. His commitment to delivering accurate and engaging content makes him a valuable resource for the community.