Retiring Early? Here's Why You Should Think Twice

The pandemic pushed 3 million more Americans than normal to leave the workforce early, a federal analysis has found. Of course, now the U.S. is struggling with unprecedented labor shortages, and experts say that it's older workers heading for the exits sooner than they should — not younger workers — who are primarily to blame. And while the state of the economy may do little to persuade older workers to stay in their jobs for a little bit longer, consider this: There's mounting evidence that early retirement doesn't translate into just a few extra years of golf, fishing, and margaritas on the beach. From your health and happiness to harsh financial realities, consider the risks of calling it quits too soon, especially as the cost of living rises due to inflation.

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According to the Social Security Administration, 1 in 7 people who are 65 right now will live to be 95, while 1 in 3 will live to be 90. Life expectancies are growing so quickly that saving enough only to thrive through the "average" retirement is likely to lead to you outlive your savings. 

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Even if you knew for sure that the average retirement length will apply to you, it's still likely that you don't have enough money to make it through. CNBC reports that common rules of thumb — such as retiring with 10 times your final salary in savings — often omit important factors like existing debt, stagnant wages, and rising costs of living. 

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According to a report from the University of Michigan, the 2008 recession revealed just how vulnerable older Americans are to market downturns, which are cyclical and inevitable. Even if the next downturn isn't as seismic as the Great Recession, a crash that coincides with your retirement could erase a huge chunk of your nest egg with almost no notice, as it did for millions starting in 2008. The young have time to ride out the storm and wait for the rebound, which took years this last time around — but older workers don't. Retirees can find themselves struggling to age well on a tight budget.

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Retiring early is a double-edged sword. First, you stop growing your stack of cash just when it's starting to enjoy the peak effects of compound interest. According to the financial website Seeking Alpha, someone who stops saving at 60 instead of 65 could sacrifice tens of thousands of dollars of portfolio growth, even if monthly contributions remain the same. Also, not only does the pile stops growing upon retirement, but it immediately begins shrinking by whatever it costs to maintain your lifestyle.  

Not all saving years are created equal. People tend to earn more when further along in their careers. Plus, older Americans are often relieved of heavy financial burdens when their mortgages are paid off or their kids finish college. That's around the time the IRS' catch-up contributions policy kicks in. Retirement accounts receive favorable tax treatment, so there are limits to how much you can contribute each year. When you turn 50, the IRS extends those maximums by thousands of dollars a year depending on your account type. By retiring early, you forfeit the chance to stuff as much money as possible into tax-privileged accounts during what are likely your prime earning years.  

You can start collecting Social Security at 62, but the earlier you retire, the thinner your checks will be. The Social Security Administration reduces the percentage of monthly payments to early retirees since the checks will be issued for a longer period of time. Retire at your full retirement age or beyond, and those checks get a whole lot sweeter. It's one of the best ways to get the most out of Social Security.  

Medicare is one of the most popular government programs in history — and for good reason. Most seniors rely on it to provide for most of their healthcare needs. With a few exceptions, you don't become Medicare eligible until you're 65. If you have employer-based insurance, that disappears when you hand in your two weeks notice. Health care costs — especially for older Americans — are expected to skyrocket. If you retire early, that's your cross to bear until Medicare kicks in, and even then, you should expect to spend a nice chunk of change on supplementary "gap" coverage.  

Financial considerations aren't the only reason to keep working while you can — your health and well-being could be on the line. According to the BBC, those who retire early are more likely to be both physically and mentally unwell than those who extend their earning years. Instances of depression among retirees are 40% higher. Diagnosed physical ailments increase by a full 60%.  

The euphoria of waking up one day and not having to go to work can wear off quickly. Publications like Forbes and Next Avenue have reported that the loss of work as a social outlet is hard on many retirees, who didn't realize that work and work functions accounted for much of their human interaction and many of their relationships. That void rarely becomes easier to fill with age.  

According to the Harvard Business Review, it's often much harder for older Americans — particularly older women — to re-enter the workforce after a hiatus than it would be for their younger colleagues. That's a difficult pill to swallow for early retirees who didn't realize that the door might close behind them should they reconsider retirement, which many do. According to a Reuters/Ipsos poll, a full 30% of retirees — nearly 1 in 3 — would go back into the workforce if they could.  

By retiring, you're reducing the chance of beginning a fulfilling second career. Even if it doesn't pay as much, changing your current line of work in favor of one that stokes your passions and your interests could lead to a new chapter in life filled with far more happiness and fulfillment than you'd get from retiring just because you can. 

If you've recently retired early, don't panic. In fact, congratulations — you've accomplished something many people dream of but never actually do. The reality, however, is that people who work past 65 live the longest. Studies show that working just a single year beyond 65 dramatically reduces the risk of all causes of death, even when lifestyle, health and demographic issues are considered. To be fair, a wide variety of variables are at play, including the fact that the data pool contains some people who retired early involuntarily because they were already too unhealthy to work. But even still, Bloomberg, citing another study, summed up the clear correlation between early retirement and early death as "striking."

Related: Great Jobs for Retirees