Early retirement is a phrase many Americans wish they could turn into a reality. While retiring in your 50s or early 60s sounds enticing, it typically requires years of planning to make sure you've accumulated enough retirement assets to last for 20 or 30 years, or more. It's important to factor in how an early retirement could affect your 1) Social Security benefits, 2) options for health insurance and 3) the nest egg you plan to rely on for ongoing living expenses.
- Social Security and Medicare
Those who collect Social Security at age 62, the earliest age when most retirees are eligible, face a permanent reduction in benefits. For example, if your full retirement age is 66, collecting benefits at age 62 will result in a 25% reduction in the monthly benefit you would have received by retiring at 66.1
Those born in 1960 or later will experience a permanent 30% benefit cut if they choose to begin collecting benefits at age 62 instead of their full retirement age of 67. In contrast, delaying benefits past full retirement age results in a higher benefit, with a maximum delayed retirement credit of 8% annually for those who were born in 1943 or later and wait until age 70 to retire.
Regardless of your age when you retire, Social Security is not likely to pay all of your living expenses. Social Security comprises 33% of the aggregate income of Americans aged 65 and older, with remaining income coming from employer-sponsored retirement plans, wages and other sources.2
- Health insurance
Finding health insurance is equally important if you plan to retire early. Eligibility for Medicare begins at age 65, and those who retire earlier typically must obtain health insurance on their own or through a former employer, which can cost thousands of dollars annually in premiums. Be sure to plan accordingly.
- Saving and budgeting
Early retirement typically requires a larger nest egg to finance living expenses over a longer period of time. Contributing as much as you can afford to qualified retirement accounts, such as an IRA or an employer-sponsored retirement plan, can help you build this nest egg.
This requires advance planning to make the situation work to your advantage. If you have the financial resources to do it, you may want to start the process at your earliest opportunity.
Your employer-sponsored retirement savings plan has many features, and there are resources available to learn more about it:
- Making contributions to your plan
- Choosing plan investments
- Taking distributions
The above article is an example of the types of resources now available through the SS&C Learning Institute via the DST Learning Center. In addition to the SS&C Learning Institute’s digital library of financial markets content, we are now able to offer access to DST’s broad-based financial educational solution that helps consumers learn about a range of topics, including managing debt, budgeting, investing, college planning and retirement. The goal is to help consumers address their financial challenges head-on and become more prepared for their future.
Through a variety of tools, including quizzes, curriculum programs and a 3,000 piece library full of articles, calculators, tutorials and videos – the Learning Center provides consumers with mobile-enabled, personalized solutions. The Learning Center is available to be licensed by financial institutions, retirement plan sponsors, banks, as well as employers. Each component can be branded and configured to meet our client’s needs and to connect into their existing consumer communication programs.
For more information about our services, visit the SS&C Learning Institute website. To learn more, email Larry McQuiad at firstname.lastname@example.org.
1Source: Social Security Administration.
2Source: Social Security Administration, Fast Facts & Figures About Social Security, 2017.
SS&C Learning Institute, Wealth Management