The key to retiring at age 62 is to assess your current assets, estimate future income and preferred lifestyle, including whether you’re willing to work part-time, and how you’ll pay for healthcare until Medicare starts. While 66 or 67 is typically the age at which Americans are eligible for full retirement benefits from Social Security, many people hope to retire earlier. A financial advisor can help you put a financial plan together for retirement, regardless of when you hope to retire.
What to Consider When Retiring at 62
If you’re set on retiring at age 62, there are a few important things to consider and questions to ask yourself first:
- How much money you’ll need to cover your monthly expenses?
- How much income you can expect from a 401(k), individual retirement account, pension, taxable investments and cash savings?
- What kind of lifestyle you’d like to have in retirement?
- Whether you’ll continue working on a part-time basis or start a side hustle or business
- How you’ll pay for medical expenses until you become eligible for Medicare?
- Your overall health and anticipated life expectancy
- Do you have long-term care and life insurance coverage?
- Whether you’re interested in leaving a financial legacy for children, other loved ones or a charity
The goal is to get a sense of how financially prepared you are to retire at age 62 and whether your plan is achievable, based on how much you’ll have saved and what you expect to need.
Anticipating Healthcare Needs
For many seniors, healthcare is one of the largest expenses you’ll contend with. If you’re retiring at age 62, it’s important to keep in mind that you can’t get Medicare until age 65. That leaves a three-year gap during which you’ll have to either purchase health insurance by paying premiums or paying out of pocket.
Assuming you stay healthy or you have a lot of savings in a health savings account (which offers tax-free withdrawals for qualified medical expenses), that might not be too concerning. But if you have a chronic health issue or your spouse does, medical bills could quickly eat into your savings.
Planning Retirement Withdrawals
Another important question to ask when you’re planning to retire at 62 is how much of your investment portfolio you can draw from each year. The A 4% rule is a popular rule of thumb for retirement withdrawals. This rule suggests withdrawing 4% of your retirement investments annually, adjusting each year for inflation, to fund a 30-year retirement.
Let’s assume you’re interested in retiring at 62 with $500,000 saved and you expect to live 30 years in retirement. If you follow the 4% rule, you’d have to cap your annual withdrawals at $20,000 in your first year of retirement to avoid running out of money. That comes out to just under $1,700 per month. To make that number work, you may have to do some significant reshuffling of your budget and lifestyle. Of course, that number doesn’t include what you might get from Social Security.
Something else to keep in mind is in which order it makes the most sense to tap retirement assets. Generally, you’re better off starting with taxable brokerage accounts first before moving on to tax-advantaged accounts, such as a 401(k) or traditional IRA, leaving tax-free Roth accounts last so those can continue growing and accumulating interest. By minimizing taxes as much as possible, you can keep more of your retirement income.
Social Security Benefits and Retiring at Age 62
If you’re considering retiring at 62, Social Security likely is one of your primary concerns. That’s because 62 is the first year you’re eligible to receive Social Security benefits, but your benefit will be lower than if you’d waited longer to start receiving those benefits.
Normally, you’d need to reach your full retirement age, which for most people is 66 or 67, to qualify for the full monthly benefit amount. And to get the largest possible benefit you’d need to wait until age 70. Taking benefits at age 62, or at any time between 62 and your full retirement age would reduce your benefit amount.
The amount of the reduction depends on the year you were born. For example, if you were born in 1960 or later, taking Social Security benefits at age 62 would reduce your monthly benefit by 30%. If you’re married and spousal benefits are also being paid, those benefits would be reduced by 35%. So for example, if you’re anticipating a $1,000 monthly Social Security payment and your spouse is expecting $500 in spousal benefits, these payments would be reduced to $700 and $325, respectively. This Social Security calculator can tell you what you can expect to receive, based on your age and when you begin taking benefits.
Going from $1,500 per month in combined Social to $1,025 could put a squeeze on your retirement budget if you have fewer assets to fall back on. For example, if you didn’t save as much in your employer’s 401(k) as you would have liked or you only had an IRA to fund, then your nest egg might be on the smaller side. That could make it harder to stretch a reduced Social Security benefit.
Should You Delay Social Security Instead?
The flip side of the Social Security coin is that waiting to take benefits can work in your favor. You can delay taking benefits up until age 70, which would then allow you to claim up to 132% of your full monthly benefit amount. The table below is based on Social Security Administration data and calculates how much benefits increase every month between full retirement age and age 70:
Delayed Retirement Increase
|12-Month Increase Rate
|Monthly Increase Rate
|1933 to 1934
|11/24 of 1%
|1935 to 1936
|1/2 of 1%
|1937 to 1938
|13/24 of 1%
|1939 to 1940
|7/12 of 1%
|1941 to 1942
|5/8 of 1%
|1943 and later
|2/3 of 1%
As you can see above, you can enjoy a nice income boost in retirement when you delay Social Security, but that scenario assumes that you won’t need those benefits before then. It’s also a bet that you’ll live long enough that the higher benefit offsets the years you went without Social Security checks. But, on the other hand, if you’re set on retiring at 62, you’ll need to be sure you have enough money to cover your expenses so that delaying Social Security works for you, not against you.
You could, for example, take on a part-time job or start a business to make extra money. But whether you want to do this or not may depend on the kind of lifestyle you’re hoping to have in retirement. If you’re ready to spend time taking up new hobbies or simply relaxing, then continuing to work in some form may not be high on your priority list.
It’s also important to understand how earning income in retirement can impact your Social Security benefits. If you have reached full retirement age (66 or 67) your benefits will not be penalized regardless of how much you earn. However, your benefits could be reduced if you haven’t reached full retirement age and you earn more than a certain amount.
In 2023, your benefits will be reduced by $1 for every $2 you earn above $21,240 (which is up from $19,560 in 2022). Your benefits will be reduced by $1 for every $3 you earn above $56,520 (up from $51,960 in 2022), assuming you reach your full retirement age in 2023.
In 2024, your benefits will be reduced by $1 for every $2 you earn above $22,320 and by $1 for every $3 you earn above $59,520, assuming you reach your full retirement age in 2024.
If you’re married, you and your spouse might consider splitting the difference on Social Security. For example, one of you could take benefits at age 62 while the other waits until full retirement age or even delays benefits until age 70. Running all the numbers can help you decide which may work best for stretching your retirement dollars.
There’s no secret formula for retiring at 62 and living a comfortable lifestyle. It all comes down to saving consistently and planning thoroughly beforehand to ensure that you’ll have enough money to last the rest of your life. Social Security is just one part of the picture, but it’s an important one. Weighing the pros and cons of taking Social Security at age 62 can help you decide if you can afford to retire. You also need to draw up a retirement budget, something you can use this free calculator to do.
Tips for Retiring at 62
- Consider talking to a financial advisor about whether you’re financially prepared to retire at age 62. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you’re hoping to retire at 62, it’s important to keep a close eye on your investment portfolio. Consider revisiting your portfolio at least once per year to rebalance and harvest tax losses if you’re not doing so already.
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