‘When Should I Retire?’ Pros and Cons of Different Ages

We’ve all had ’em. Those days you’re prepared to hand your boss a resignation letter and lead the good life of a retiree.

While leaving the workforce early might sound like paradise, it can be a big mistake if you’re not financially ready to live without a paycheck.

When is the right time to retire? It’s a question that depends on your personal needs and circumstances – and your personality and plans for what you'd do instead. Here are some of the pluses and minuses of quitting your job at different ages.

Let’s be honest: Leaving your nine-to-five job has some nice perks. By the time some workers reach their 50s and early 60s, they’re starting to feel burnt out.

Retiring before the traditional age of 65 (the U.S. average is actually 63) can be invigorating. Whether it’s traveling, taking up new hobbies or simply finding a part-time job with less stress, it’s your opportunity to recharge.

And while research isn’t unanimous on the issue, there’s evidence that retiring can leave you healthier and happier. A 2015 paper published by the National Bureau of Economic Research, for example, found “strong evidence” that leaving the workforce leads to better physical and mental well-being.

But there’s a major caveat here. Relatively few people have the financial resources to support an extended retirement. While you’ll become eligible for Social Security at age 62, you won’t qualify for your full monthly benefit amount until years later (for those born before 1955, it doesn’t happen until age 66; for those born in 1955 or after, it can be as late as age 67).

If you claim benefits at 62, you only get 75% of the full amount, which makes up for the fact that you’ll be getting checks for a longer period of time. The benefit for your spouse takes a hit, too. They’ll only get 35% of your full retirement amount, compared to 50% if you wait until at least 66. (For more on Social Security and when to start receiving benefits, see Filing Early for Social Security: When It Makes Sense and 10 Common Questions About Social Security.)

Chances are, you’ll need a large nest egg to supplement your Social Security funds, especially if you hang it up very early. The traditional thinking is that you’ll need 25 times your annual expenses (minus Social Security) in order to avoid outliving your money. And the earlier you retire, the more you’ll need. (Check out 10 Signs You Are Not OK to Retire.)

Keep in mind, too, that you won’t be eligible for Medicare until you reach age 65, so you’ll almost certainly face steep out-of-pocket costs if you have to get health insurance on your own.

A report published earlier this year by the insurance brokerage eHealth concluded that the average adult between the ages of 55 and 64 paid $701 in monthly premiums (without subsidies) on an exchange. By contrast, the standard Medicare Part B premium is now $134 a month – and it gets you coverage with a relatively low deductible of $183 a year. (To be well-protected, though, you also need to figure in Medigap and your prescription drug coverage. See Medicare 101: Do You Need All 4 Parts?)

For many, the upper 60s is the golden mean of retirement timing – you’re old enough to have built up a nice financial reserve and young enough to enjoy your job-free years.

The fact that you’ll get your full Social Security payment at age 66 (if you’re born pre-1955, that is) can make a huge difference, especially if you’re relatively healthy and likely to have an average, or longer-than-average, retirement.

Waiting also gives you a few extra years to shore up your tax-advantaged investment accounts. Investors who are at least 50 years of age can use a “catch-up provision” to put an extra $6,000 annually into their 401(k) and an extra $1,000 annually into an IRA.  For 2017, that means you can invest up to $30,500 in these plans ­­­– $24,000 in a 401(k) and $6,500 in an IRA – if you’re 50 or older. (For more, see When can catch-up contributions start?)

Plus, those who wait until they reach 65 are eligible for Medicare, which is typically a fraction of the cost of individual insurance plans for older adults. (Read Medicare 101: Do You Need All 4 Parts?)

If you love what you do for a living, the advantages of working into your 70s are readily apparent. For everyone else, a protracted career might sound like the last thing you’d ever want.

But consider the advantages. For one, you’ll have more time to bulk up your savings. Plus, you’ll benefit from the highest-possible Social Security payout. Benefits increase on a prorated basis until you reach age 70, when they’re 132% of your full amount.

The upshot: If you plan well, you’ll have more money to do the things you truly love. And you’ll have fewer worries about outliving your assets.

Of course, delaying retirement isn’t always a choice. A recent Ipsos/USA Today poll highlights how unprepared many Americans are for retirement. Of the 45- to 65-year-olds surveyed, 30% had less than $100,000 in savings, and another 30% had none at all. (For a look at the reasons why many are unprepared, see: Why Boomers Aren't Saving Enough for Retirement.)

Many older workers can’t wait for the day when they finally call it quits on their career. But constantly worrying about finances isn’t exactly the way to spend your later years. Before deciding to retire, make sure you have the resources to make the most of this exciting new stage of life.