5 Things You Need to Know Before Retiring at 62

If you don’t qualify for Medicaid and can’t afford a private health plan, you may be able to get needed medical care at a community health center. There are more than 1,300 nationwide, charging fees on a sliding scale based on your income. The federal Health Resources & Services Administration has an online tool you can use to find one near you.

2. You can claim Social Security, but you’ll get less

Many people retire at 62 because that’s the earliest you can collect Social Security retirement benefits. But just because you can claim monthly benefits at 62 doesn’t always mean you should.

Social Security pays 100 percent of the benefit calculated from your lifetime earnings history if you claim it at full retirement age. Start earlier and your benefit is reduced by as much as 30 percent, permanently. On the other hand, if you wait past FRA, you get a benefit boost — 8 percent for each year you delay, up to age 70.

“If you are not in good health and need the money, then filing earlier is a necessity,” Williams says. Otherwise, “I suggest everyone consider waiting if they can.”

What you can do: Like switching from full-time to part-time work, taking Social Security as part of your early retirement is effectively accepting reduced pay. Before you decide, assess your overall income picture. Will other sources of money, such as your savings or a pension, help you cover that gap over a lengthy retirement? Would your claiming decision affect benefit options for your spouse?

“Run through the scenarios,” Williams advises. “That Social Security decision is a very important one.”

3. Retirement is expensive 

Food prices have gone up 25 percent since the start of the pandemic, and housing costs by 20 percent. Interest rates on credit cards, loans and mortgages have climbed, and home insurance and auto insurance premiums are soaring. Those things don’t suddenly cost less when you retire.

Inflation recently hit a 40-year high, but Americans under 50 have spent most of their lives in a period of relative price stability and may not be bracing for another spike, or accounting for the toll slow but steady increases could take on their future finances.

“The surveys that are showing people’s expectations of an early retirement going up might be more a result of society’s lack of experience with inflation,” says Chris Manske, president of Manske Wealth Management in Houston. “Just because you can transition to a fixed income at today’s prices doesn’t mean you’ll be comfortable after 10 or 20 years of prices going up.”

What you can do: Factor in the potential impact of inflation in calculating your retirement budget. The Federal Reserve’s target annual inflation rate is 2 percent. Try to increase your savings rate by 2 percent or 3 percent, so your nest egg can keep up. “You need to know before you retire what your lifestyle will look like with inflation,” Manske says.

4. You might miss work more than you think

Working isn’t only about bringing home a paycheck. It can also enrich your life with social connections and a sense of purpose. Transitioning into a life of ease may be difficult, particularly if you do so relatively young.

“Many people don’t know what to do with their time,” Williams says. “Many people retire and hate it.”

What you can do: Retirement planning isn’t just about saving money. It’s also planning what your life will be like. Do you intend to work part-time or freelance? Travel the world? Pick up that hobby you’ve long thought about? Prepare to fulfill your aspirations, whatever they are.

Say you want to do consulting work after leaving full-time employment. Develop the skills and the network you’ll need before you take the plunge. If travel is your goal, determine how much that will cost and whether you can afford it.

“It doesn’t happen on its own,” Williams says. “You have to be open to planning for that.”

5. You might live longer than you think

Some people retire early for fear that if they put it off, they won’t have enough time to do what they want. That may be true for some, but on average, an American who reaches age 62 is projected to live an additional 20-plus years (21 years for a man and 24 for a woman), according to census data.

“A lot of the population is living much longer than in the past,” Munnell says, which means “many will be supporting themselves for a long time in retirement.”

What can you do: To guard against the prospect of outliving your money, plan for 20-plus years of retirement. Check that your savings are sufficient to supplement your fixed income. Be sure to factor in health care expenses: The average 65-year-old will need $157,500 in after-tax savings to cover out-of-pocket costs over the course of retirement.

If the numbers don’t add up, you may want to consider putting off retirement. Working even one more year can have a big impact.

“In my view, working longer is the most important thing you can do to have a secure retirement,” Munnell says. “It gives you higher monthly Social Security benefits, allows you to wait to go on Medicare for health insurance, allows your 401(k) to build if you have that, allows you time to pay off your mortgage on your house and reduces the number of years you have to support yourself with your accumulated retirement assets.”