Key insights
- The gap between planned and actual retirement ages is widening, with many Americans retiring earlier than expected due to hardship or company changes. This trend may lead to reduced retirement savings, increased healthcare costs, and earlier reliance on Social Security. While not an immediate market mover, this demographic shift could gradually dampen consumer spending and labor force participation, posing a slight long-term headwind for US equities.
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Americans plan to leave the workforce at age 65, but are retiring earlier than anticipated.
In a recent survey by the Employee Benefit Research Institute, the median expected retirement age was 65, while the actual median retirement age was 62.
Almost half of retirees said they left the workforce earlier than they had anticipated. As for why retirees are leaving the workforce early, 41% said they did so due to hardship, like illness, while 35% did so because of changes at their company.
It could be risky to plan to retire later, as many workers end up retiring earlier than they had planned. To prepare for the possibility of retiring early, start retirement planning in your 40s or 50s by saving more and making plans for how you'll pay for health insurance and when you'll collect Social Security.
For workers, retiring early can mean accumulating less in retirement savings, having to choose health insurance options, and needing to collect Social Security earlier.
While workers might not be planning to retire early, it could be worth creating a contingency plan just in case—even retiring three years earlier than expected could mean missing out on thousands of dollars worth of additional savings.
For example, if you earn $80,000 and contribute 5% of your salary to your 401(k) and earn a 5% match, you would lose out on $24,000 worth of retirement savings by retiring at age 62 instead of 65.
Additionally, early retirees will need to determine how they'll obtain health insurance, as Medicare is generally available only to those age 65 or older. Early retirees may need to rely on their spouse for health insurance, enroll in COBRA, or even find a plan on the Affordable Care Act (ACA) exchange.
You might want to try stashing additional money in your retirement accounts while you're still working. If you're 50 or older, you could be eligible for catch-up contributions to your 401(k) or individual retirement account (IRA). For 2026, the catch-up contribution limits are $1,100 for IRAs and $8,000 for 401(k)s.
Another way of mitigating the risk of retiring earlier than intended is to evaluate your job in your early 50s, according to Geoffrey Sanzenbacher, Professor of the Practice at Boston College. If you have a job that you don't think you can stick with until you're ready to retire, you might want to switch jobs, finding a role that better fits your skills and abilities.
And when planning for Social Security, consider how early collection could affect the size of your monthly checks. If your full retirement age, or the age at which you receive 100% of your Social Security benefit, is 67, and you collect at age 62, your monthly benefit will be reduced by 30%.
Ultimately, whether it's worth it to collect early will depend on your life expectancy, whether your spouse is collecting on your record, and more.
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