6 reasons not to retire early
Countless Americans dream of early retirement, and why wouldn't they? Sipping fruity drinks on a warm beach sounds a lot better than slouching over a desk in a gloomy office crunching numbers.
But retiring early may not be the right option for you. Not only can it make life harder financially, but research also shows early retirement can hurt your social life and even your health.
Before pulling the trigger on early retirement, consider these six issues:
1. Your Social Security benefits go down
Social Security benefits become available to most people at age 62. But taking benefits early means your monthly check will be smaller – in some cases, way smaller. If you retired at age 62, your monthly checks would be 25% less than if you had waited until the full retirement age, generally 66, and 43% smaller than if you had waited until age 70, says Sara Rix, senior policy advisor with AARP's Public Policy Institute.
"That's a lot of money, and I don't know that many people think that through," she says. "A lot of people are under the erroneous perception that when they hit full retirement age, their benefits will go back up, but they won't."
A larger monthly benefit is particularly important as you pass age 70, when other savings may be exhausted and health problems become more likely.
"The more money you have coming in each month, the better," Rix says.
2. Increased health care costs
An even bigger burden for many retirees is health care coverage. Medicare doesn't kick in until age 65, so retiring at age 62 leaves you with three years to cover your own health insurance premiums and other expenses.
The verdict is out on how much the Affordable Care Act has helped, according to Rix. While federal law makes COBRA continuation insurance available for up to 18 months after you leave your job, premiums "go up tremendously" in some cases and coverage may not be great, says Adria Gross, a patient advocate with MedWise Insurance Advocacy in Monroe, New York.
"The people who are in that trap are the ones who have a few more years to go before they turn 65," she says. "They're getting screwed."
3.You reduce your potential savings
Retiring early often cuts short the highest-earning years of a career and the potential savings. Delaying retirement even for a couple years can significantly boost your nest egg and potentially keep you from running out of money.
"The later and longer you can wait, the more return you'll get," Rix says.
4. It's harder to maintain friendships
You may not think of your job as party central, but a lot of socialization occurs on the job or after work, and those friendships can fade after you leave the office. It takes more effort to meet people during retirement, particularly if you're widowed, and a lack of social interaction can lead to mental and even physical health problems, according to a study published in the Annals of Family Medicine.
5. Your health and self-esteem can take a hit
Retirement can contribute to declines in your mental and physical health. According to a 2013 study by the Institute of Economic Affairs in Great Britain, retirement increases the chance of having at least one diagnosed physical ailment by 60% and clinical depression by 40%. Retiring early could bring these problems on sooner.
Self-esteem levels can also take a hit as people get older, fueled by a decrease in income and "occupational prestige" after retirement, among other reasons, according to research co-authored by Dr. Richard Robins of the University of California, Davis.
"Retirement encompasses a confluence of factors that all seem to have small, but predictable, effects on self-esteem," he says.
6. The bottom line: Plan ahead
Whether you retire early, making it work requires planning. Think about the possible repercussions — short- and long-term ¬— before making what could be an irrevocable decision.
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