When to Retire: Pros and Cons of Different Ages

When Is the Right Time to Retire?

Deciding when to retire is a personal question that depends on your health, life expectancy, financial needs, and individual circumstances. Different benefits and retirement plans have key dates tied to your age, such as Social Security benefits and required minimum distributions.

The National Bureau of Economic Research found that "retirement improves both health and life satisfaction" but the age at which you retire impacts the quality of your retirement.

Early Retirement

By the time employees reach their 50s and early 60s, they're often thinking of retirement. According to the U.S. Bureau of the Census, men retire at an average age of 65 years, while women remain at work until age 63.

The original rules surrounding Social Security benefits established age 65 as the retirement age when workers could receive unreduced retirement benefits. In 2023, the Social Security full retirement age is 66 for those born between 1943 and 1959, and 67 for anyone born in 1960 or later.

An individual's retirement savings, health benefits, and Social Security commonly dictate the best time to stop working and vary by age.

Pension Plans and IRAs

If retiring before age 65, some individuals, such as federal employees, can withdraw retirement plan savings at age 55, but only from government plans and not IRAs. Public safety employees may qualify to withdraw at age 50. At age 59½, all employees can withdraw money from their qualified plans and IRAs without an IRS penalty for early withdrawal. Individuals who delay retirement must start required minimum distributions (RMDs) from retirement plans. Though the required minimum distribution age used to be 72, the U.S. Congress increased the RMD age to 73 as part of SECURE 2.0, a section of H.R. 2617.

Chances are that you'll need a large nest egg to supplement your Social Security funds, especially if you hang it up very early and retire before age 65. The earlier you retire, the more you'll need. According to Fidelity Investments, individuals retiring at age 65 should aim to have 12x their pre-retirement salary saved and plan an annual withdrawal rate throughout retirement of 4.2%.

Social Security

Individuals who retire at 65-66, or earlier and claim benefits from Social Security will have their benefit amount reduced by 25%-30% depending on their age. Additionally the retiring person's spouse will have their benefit reduced by 30%-35%. Retiring at ages 66–67 will glean a full Social Security benefit, depending on when you were born, and age 70 is the latest age to start receiving Social Security benefits.

Individuals who have elected to collect Social Security benefits are still able to work if they choose. For those who elect to collect benefits before their full retirement age, their earnings are capped. Earning beyond the caps results in a benefit deduction. For those who waited until the full retirement age to collect Social Security benefits, they can earn as much as they please without a benefit reduction.

Medicare and Health Benefits

People age 65 and older are eligible for Medicare. Those who retire earlier than 65 will need to budget for the cost of health insurance.

An individual applying for health insurance in 2023 who complied with the Affordable Care Act (ACA) paid an average of $605 per month in premiums (before any premium tax credits). Many individuals in their late 50s or early 60s should expect to pay above average.

The average cost of Medicare Advantage (Part C) is $18.50 per month in 2024, up very slightly from $18 a month in 2023. The standard Medicare Part B premium is $174.70, up from $164.90 per month in 2023. The Part B 2024 deductible is $240, up $14 from $226 in 2023.

To be well protected, consider prescription drug coverage (Medicare Part D) and perhaps Medigap. The average for prescription drug coverage (Medicare Part D) is $55.50 per month in 2024, while it was $31.50 a month in 2023.

Medigap is private insurance designed to supplement traditional Medicare and prescription drug coverage. Note that if you don't sign up for prescription drug coverage (Part D) when signing up for Medicare at age 65, when you do sign up for it, you can pay a higher penalty rate for the rest of your life—unless you are covered by an employer drug plan.

Retiring After Age 65: Ages 66 to 70

For many, the upper 60s is the golden mean of retirement timing—you're old enough to have built up a nice financial reserve and young enough to enjoy your job-free years. The fact that you'll get your full Social Security payment at age 66 to 67 can make a huge difference, especially if you're relatively healthy and likely to have an average or longer-than-average retirement.

Waiting also gives you a few extra years to shore up your tax-advantaged investment accounts. Investors who are at least 50 years of age can make an annual catch-up contribution to their 401(k) or IRA. For tax year 2024, those 50 or older can contribute $8,000 to a traditional IRA or Roth IRA. If you use a 401(k) to save for retirement, you can defer up to $30,500 of your salary in 2024 after you reach the age of 50.

Also, waiting until you hit 65 means that you are eligible for Medicare, which is typically a fraction of the cost of individual insurance plans for older adults.

Late Retirement: Age 70 and Older

If you love what you do for a living, the advantages of working into your 70s are readily apparent. For everyone else, a protracted career might sound like the last thing they'd ever want.

Nevertheless, consider the advantages. For one, you'll have more time to bulk up your savings. You'll also benefit from the highest possible Social Security payout. Benefits increase on a prorated basis until you reach age 70, when they're 132% of your full amount if you were born between 1943 and 1954. And if you were born in 1960 or later, your benefit would increase by 124%.

The upshot is that if you plan well, you'll have more money to do the things you truly love, and you'll have fewer worries about outliving your assets. And if you stay healthy, you'll still have many years to enjoy the freedom of being retired.

Of course, delaying retirement isn't always a choice, for a variety of reasons. Research published by Northwestern Mutual in 2021, for example, found that the economic impact of the COVID-19 pandemic has changed the retirement plans of many Americans. Almost a quarter (24%) plan to retire later than previously expected.

Planning to Retire vs. Actually Retiring

Americans today are retiring at later ages than those in the past three decades, according to Gallup. In 1991, U.S. retirees reported that they retired at age 57; in 2022, the age had risen to 61. And their target age for retirement has risen, too—from 60 in 1995 to 66 in 2022. Gallup surveyed Americans about their retirement plans in 1991–1993 and 1995, and has been asking them about retirement annually since 2002 in its Economy and Personal Finance survey. Below is a look at the expected vs. actual retirement age of workers in the U.S. over a 20-year period from 2003–2022, according to Gallup's survey data.

The Bottom Line

Many older people can't wait for the day when they finally call it quits on their careers and retire. Still, constantly worrying about finances isn't exactly the way to spend your later years. That is why it's important to consider when you should actually retire rather than focusing on the age at which you are eligible to collect retirement benefits. Before deciding, make sure you have the resources to make the most of this new stage of life.