You might not be as prepared for retirement as you think. Deciding when to retire is a highly personal choice. Some people aim to retire as early as possible, while others prefer to continue working well into their later years. Regardless of your preference, this decision should be made with careful consideration. Retiring before you’re financially ready can severely impact your ability to enjoy your senior years comfortably.
Research indicates that the average American retires at age 61, but there are significant risks associated with this trend.
The Changing Average Retirement Age
As of 2022, the average retirement age among U.S. workers is 61, according to a Gallup poll. This is an increase from age 59 in 2002 and age 57 in 1991, reflecting a trend of people choosing to retire later. A 2023 report from the Transamerica Center for Retirement Studies found that nearly half of baby boomers plan to work past age 70 or never retire at all. Despite this, the Gallup poll also revealed that non-retired adults expect to retire at age 66. This means the average worker retires five years earlier than anticipated.
While retiring early isn’t necessarily negative, it can be problematic if you’re not adequately prepared. The Transamerica report showed that 83% of baby boomers who plan to keep working do so for financial reasons, suggesting their savings are insufficient. Additionally, only about one-third of workers have a contingency plan if they need to retire earlier than expected. Retiring just one or two years earlier than planned can deplete your savings by tens of thousands of dollars. Since the earliest age to begin taking Social Security retirement benefits is 62, retiring before then may force you to withdraw even more from your savings.
Protecting Your Retirement
There may be limited options to prevent early retirement due to job loss or health issues. However, you can take steps to mitigate the impact of these unforeseen events. One of the best strategies is to increase your savings, operating under the assumption that you might retire earlier than planned.
If you have several years until retirement, even modest increases in your savings can accumulate significantly. For instance, contributing an extra $100 per month to your retirement account could grow to over $17,000 in 10 years, assuming an average annual return of 8%. While this alone isn’t enough to retire on, it can help extend the longevity of your savings if you retire early.
Additionally, taking measures to avoid early retirement can be beneficial. Adopting healthier lifestyle habits may help prevent future health issues, and seeking sources of passive income or side jobs can provide additional income if you lose your job.
There’s no guaranteed way to ensure you’ll retire exactly when planned, and it’s not always possible to prepare for an early retirement. However, by being aware of the possibility and taking proactive steps to protect your retirement now, you can be as prepared as possible.