Nearly 60% of Retirees Left Work Sooner Than Planned—Here’s Why It Matters for Your Future

Key Takeaways

Most people retire earlier than planned for reasons such as health issues and job loss.
Retiring early means you can have more time for doing the things you enjoy and making more social connections.
You may outlive your finances if you don’t plan carefully, and you may need to pay for your own health insurance.
Maximize your retirement savings, build an emergency fund, and consider making adjustments to your lifestyle.

Why People Retire Earlier Than Planned

At some point, many people want to retire full-time so they can focus on their well-being, hobbies, interests, travel, family, and relaxation. Having a proper retirement plan ensures that you have enough income to cover your housing, food, clothing, health care, and other expenses without having to rely on a full-time job or other people.

According to Transamerica, 59% of people consider themselves retired and out of the workforce before they turn 65. The survey showed that the median age of retirees was 62, while only 12% of people retired at 65. Only 30% of people surveyed said they considered themselves fully retired after 65 or planned to continue working after that age.

The survey also showed that:

58% of people retired sooner than they planned
36% of individuals retired as planned
6% retired later than planned

Those who retired sooner cited reasons including health, illness, job loss, organizational changes, and unhappiness in their job. Some took a retirement buyout, while a small percentage said they got a “financial windfall.” Those who retired later said they kept working because of finances or for benefits. More than half said they wanted to keep working for personal reasons, such as keeping active or staying alert.

Only half of the people surveyed by Transamerica said they've built a large enough retirement savings to rely on, although 91% say they'll rely on Social Security. As many as 61% said they also had other forms of savings to live off of during their retirement.

Important

Retirement isn't just about money. It's also about time. So, consider what you'll do with your time after you leave the workforce, because if you retire early, you'll have a lot of it.

Why This Matters for Your Future

Retiring early can have a major impact on your future as long as you plan correctly. That impact can be positive or negative.

Better Health, More Time, Social Connections

When you leave the workforce at an early age, you tend to be healthier than you'd be if you retire at a later age. You also give yourself more time to do the things you enjoy, including traveling, volunteering, and taking up hobbies like photography or cooking. You also have the time to spend with family and friends and build connections with new people.

Testing Your Financial Resources

Retiring early means you're putting your financial resources at risk. This means that you end up with a longer time horizon, which means your nest egg has to go further. If you're going to retire early, you'll have to plan wisely and save more and invest wisely to make sure your money goes further.

Another factor to consider is that your Social Security benefits are reduced if you decide to claim them before you reach your full retirement age (FRA). Your FRA depends on your birth year:

Age When You Can Receive Full Social Security Benefits
Birth Year	Full Retirement Age (FRA)
1943–1954	66
1955	66 and 2 months
1956	66 and 4 months
1957	66 and 6 months
1958	66 and 8 months
1959	66 and 10 months
1960 or later	67

Keep in mind that you get the maximum benefit if you wait to claim Social Security until age 70.

You May Outlive Your Finances

If you retire early and haven’t saved enough, you run the risk of running out of money. Inflation, cost of living, health care, economic changes, and market volatility can chip away at the value of your money and investments. And if you’re not careful and don’t live by a budget, you could go through your nest egg and overspend what you have.

You'll Need Health Insurance

You won’t qualify for Medicare until you turn 65, unless you have a qualifying condition. Getting health care before you reach 65 can be expensive if you don’t have a plan. You have several options:

Consolidated Omnibus Budget Reconciliation Act (COBRA): This option allows you to continue coverage under your employer’s plan. Although temporary, you generally can be covered for 18–36 months, depending on the plan. This is very expensive, though, as you are responsible for the entire premium.
Coverage under your spouse’s plan: This is probably the most affordable option if your spouse is still working.
Affordable Care Act (ACA) Health Insurance Marketplace: You can generally find low-cost plans through the healthcare marketplace. The open enrollment period is Nov. 1 to Jan. 15, but if you lose coverage through your employer, you may be able to enroll through the special enrollment period.

How to Prepare for Early Retirement

There are practical ways to retire early as long as you plan diligently. Consider the following tips.

Maximize Your Retirement Savings

Save more in your tax-advantaged retirement accounts than you normally would. Not only does this let you save for your nest egg, but it also lowers your taxable income in some cases. The Internal Revenue Service (IRS) sets limits on how much you can set aside in your retirement accounts each year.

You can save up to $23,500 in an employer-sponsored plan, such as a 401(k) or a 403(b), with an additional catch-up contribution of $7,500 if you’re 50 and older.
You can save up to $7,000 in an Individual Retirement Account (IRA), plus an additional $1,000 if you’re 50 and older
You can contribute to a Roth IRA if your modified adjusted gross income (MAGI) meets a certain threshold

Build and Pad Your Emergency Fund

An emergency fund is a necessity for anyone. Experts suggest setting aside at least three to six months’ worth of expenses to cover emergencies. This money should be put into a highly liquid account, such as a high-yield savings account or money market account. If you’re planning on retiring early, you may want to save even more since you’ll no longer be working full-time and won’t be drawing a regular paycheck.

Diversify Your Income Streams

Don't rely on one form of income, such as Social Security, to fund your retirement. Consider building different income streams to protect against inflation and reduce the risk that comes with relying on a single source.

Consider passive income sources, such as dividends, annuities, rental income, and bonds. These sources provide you with regular income that you don’t have to work for to maintain. Another bonus is that you’ll use less money from your savings during retirement if you have more passive income sources.

Working part-time during retirement also guarantees you another income source. You can get paid while keeping yourself active. And if you work enough hours, your employer may offer you healthcare coverage.

Manage and Pay Your Debt

Paying off as much debt as you can before you retire can reduce your stress as well as your financial burden. Focus on paying off all of your high-interest debt, such as credit cards and unsecured personal loans. If you have a mortgage, making additional payments can ensure that your housing costs are as low as possible when you leave the workforce.

Make Lifestyle Adjustments

You can cut down costs by making certain lifestyle changes:

Make a budget and stick to it so you get the most bang for your buck
Cut back on your discretionary spending
Downsizing can help you reduce your costs
Consult a financial and tax professional to maximize your savings and tax strategies
Review your retirement plan regularly to ensure that you’re on track

The Bottom Line

Retiring early may be a dream for many, but it can become a reality with careful planning. The keys to retiring early are to set clear goals, save diligently, curb your spending, and have a solid plan. Working with a financial professional can help you achieve the dream of retiring early if you need help, so don’t hesitate to reach out if you need help.