Early retirement vs. working after retirement

 
A family sits down to dinner together.

Is there such a thing as an “official” retirement age?

For those of us used to working 40 hours a week, 52 weeks each year, retirement represents 2080 hours of time each year to play with and plan for. A little homework can help guide you as you contemplate your retirement timeline.

Medicare: Unless you are eligible due to a disability, you’re not eligible for Medicare until you turn 65, regardless of when you stop working.

Social Security: If you retire early and claim Social Security benefits before your full retirement age, your benefits may be reduced by as much as 30%.1

Retiring, aging in to Medicare, and signing up for Social Security are major life events, each playing an important role in our long-term financial security. But the best way to make the most of each is to take some time to consider them together.

For most of us, Social Security and Medicare eligibility are determined by age.

A 2018 Gallup poll of unretired Americans found the following:2

  • 12% expect to retire before the age of 59
  • 15% expect to retire between the ages of 60 and 64
  • 24% expect to retire at age 65
  • 41% expect to retire at 66 or older

What to consider when planning for early retirement

Maybe you've had a difficult year health-wise. Maybe your workplace has changed so much and it no longer feels like a good fit, or your adult children need support with childcare for the grandkids. If you want to retire early, take some time to consider your options for healthcare coverage while you wait for Medicare to kick in.

Let’s look at the issues.

Your retirement age: Should you retire at 60? At 55? At 62? Only you can answer that question, but whatever you decide, you’ll want to understand the impact of reduced benefits (and income) on healthcare planning and budgeting.

 

Medicare: Unless you are eligible due to a disability, you’re not eligible for Medicare until you turn 65, regardless of when you stop working.

 

Social Security: Workers who retire early will receive reduced Social Security benefits—as much as 30% less.

 

Post-employment healthcare planning: Are you sure you won’t lose employer-sponsored insurance by retiring early? Find out before you make your next move. If you will no longer be covered, find out what health insurance for retirees under 65 will cost you and whether your budget can maintain the expense until Medicare kicks in.

 

Do you want, or need, to keep working past 65?

Do you love your job? Do you enjoy the structure of your work life, the comradery of working as part of a team? Maybe you’d just like a few more years to beef up your retirement fund before you say goodbye to a steady paycheck.

You can work as long as you're healthy and inspired, age aside. However, your age does affect timing for Medicare and Social Security.

Here's what you should know about working past the retirement age:

Potential Pros

  • A bigger pension and/or 401(k)
  • A larger nest egg
  • Higher Social Security benefits
  • Coordinating your schedule with your spouse's, if he or she is still working

Potential Cons

  • Choosing to work past 65 may affect your Social Security and Medicare options
  • At age 70 ½, required minimum distributions from your individual retirement accounts apply
    • Withdrawals will factor into your taxable income

Consider the “age factor”

It’s important to sign up for Medicare when you’re eligible to avoid late enrollment penalties. However, there are situations where you may qualify for a Special Election Period, including losing coverage of an employer group health plan.

Social Security: You can start your retirement benefit at any point from age 62 up until age 70, but your benefit will be higher the longer you delay starting it. Your benefit won’t increase after age 70.3

You can determine your full retirement age (between 65 and 67, depending on your year of birth) and calculate your benefits with this Social Security Retirement Age Calculator, opens new window.

Healthcare planning impact: You can claim Social Security benefits as long as you've reached your full retirement age, even if you’re still working. Likewise, you can choose to enroll in Medicare once you turn 65, even if you’re still covered by your employer’s healthcare plan.

How do I make the best choice for my budget?

For some people, retirement is a goal they’ve worked toward for years. For others, work is fulfilling and they see no reason to stop.

You've likely never been retired before, so it's impossible to know whether you’ll fully enjoy early retirement over extended work, or even if you’ll dislike working longer as much as you think you will.

Ultimately, the choice is yours.

See our Medicare options in your area

Sources

  1. “Early or Late Retirement?,” Social Security Online, last accessed June 2019, ssa.gov/oact/quickcalc/early_late.html, opens new window
  2. “Snapshot: Average American Predicts Retirement Age of 66,” Frank Newport, Gallup Organization, last accessed June 2019, news.gallup.com/poll/234302/snapshot-americans-project-average-retirement-age.aspx, opens new window
  3. “When to Start Receiving Retirement Benefits,” Social Security Administration, last accessed June 2019, ssa.gov/pubs/EN-05-10147.pdf, PDF opens new window

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