Retiring Too Early


The decision of when to retire includes factors ranging from health to financial to psychological. Unfortunately many retirees make the decision to retire too soon from a financial perspective. In many cases working only a few more years can have a significant impact on the quality of retirement for the remainder of life. Social Security often represents a significant portion of post-retirement income and individuals frequently compound the problem of retiring too early by also electing to take Social Security payments as soon as eligible (currently age 62). Most economists agree that delaying Social Security, especially in the current era of low interest rates, produces the best financial outcomes.

For a period of approximately 30 years from the 1960’s through the mid 1990’s, retirement age decreased, even as life span increased, creating longer and longer retirements supported by fewer working years. This trend has reversed in the last 15 years, and retirement ages are now increasing.

Failing to Realize that Retirement Might Not Be by Choice
Approximately half of all people who retire do so by choice. (SOA, 2012) The breakdown is as follows:

This was confirmed by the EBRI – “Regardless of those retirement age expectations, and consistent with prior Retirement Confidence Survey findings, half of current retirees surveyed say they left the work force unexpectedly due to health problems, disability, or changes at their employer, such as downsizing or closure.” (EBRI, 2012a)

Incorrectly Anticipating Retirement Age

  • After a steady decrease over the previous 35 years, retirement age for men has been rising since 1996. The average age of retirement for women has been increasing since the early 1960’s.
  • There is a long term trend toward workers’ expectation that they will work beyond age 65:
  • “Twenty-five percent of workers in the 2012 Retirement Confidence Survey say that the age they expect to retire has changed in the past year. In 1991, 11 percent of workers said they expected to retire after age 65, and by 2012 that has grown to 37 percent.” (EBRI, 2012a)

Taking Social Security Too Early
The majority of retirees choose to begin receiving Social Security payouts within a few months after age 62 or immediately after they stop working, even though it is almost always beneficial to delay the benefits. A study by Shoven and Slavov concludes that most retirees are leaving money on the table.

There are “spikes” in the retirement age data at ages 62 and 65. Some psychologists argue that early Social Security eligibility at age 62 and perception of “normal” retirement age at 65 serve as reference points that influence peoples’ decisions to retire at these ages. (Knoll, 2011)

Failing to Understand Employer Concerns About Older Workers
Employers have not shown significant desire to retain or hire older workers. Relative productivity (combined with relatively higher wages), the increased cost of healthcare, and the perception of older workers having “outdated” skills are prominent concerns.

Conversely, older workers tend to be more educated, and changes in the workforce — including less physically demanding jobs and defined contribution pensions — make older workers competitive with, if not more appealing, than younger workers. The large-scale exiting of the workforce by baby boomers should also increase demand for workers generally.