Planning to retire at 62 is worth considering, but whether it’s a realistic goal depends on how much you’ve saved, your anticipated living expenses, and an educated estimate of your likely longevity.
If you choose to retire at 62, which is on the early side these days, it’s important to have a solid retirement strategy in place so that you don’t run out of money.
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Should You Retire at 62?
Your answer will depend on your overall financial situation and how much preparation you’ve put into planning for early retirement. Retiring at 62 could make sense if:
• You have little to no debt
• Your overall living expenses are low
• You’ll have multiple streams of income to draw on for retirement (e.g. Social Security as well as an IRA, 401(k), or pension)
• Don’t anticipate any situations that could hinder your ability to meet your retirement expenses (e.g. medical expenses, dependent family members)
On the other hand, retiring at 62 could backfire if you have limited savings, extensive debt, or you think you might need long-term care later in life, which could substantially drain your nest egg.
Beyond financial considerations, it’s also important to think about how you’ll spend your time in retirement.
You might retire at 62 and find yourself with too much time on your hands, which could lead to boredom or dissatisfaction. While studies have shown that retirement, and in particular early retirement, can improve mental health for some individuals, it may worsen mental health for others.
Retiring at 62 With a Little Bit of Money
There is no single dollar amount that’s recommended for retirees, though financial experts might say that $1 million to $2 million is an optimal goal to aim for. If you haven’t saved close to those amounts, you might be wondering how to retire at 62 with little money.
Defining for you can help you decide if retiring at 62 is realistic. Asking these questions can help you clarify your retirement vision:
• Will you continue to work in some capacity?
• How much do you have saved and invested for retirement?
• Will you take Social Security benefits right away or wait?
• What does your monthly retirement budget look like?
• What kind of lifestyle are you hoping to enjoy?
• How much do you anticipate paying in taxes?
Retiring at 62 with little money could be workable if you plan to relocate to an area with a lower cost-of-living, and cut your expenses. It also helps if you have additional money from Social Security, a pension, or an annuity that you can count on.
Investing for Retirement at 62
The longer you have until retirement, the more time you have to invest and grow your money through the power of compounding interest. If you’re planning to retire at 62, adjusting your strategy to be aggressive might be necessary since you:
• Have less time save
• Need the money that you do save to last longer
Save and Invest More Aggressively
Instead of saving 15% of your income for retirement, for instance, you might need to set aside 30% or more to cover your living expenses. And rather than stick with a conservative asset allocation, you may want to lean toward a higher percentage of equities to add growth.
For example, if you plan to stop working completely, you’ll need to weigh the cost of health care until you become eligible for Medicare. You can’t apply for Medicare until the year you turn 65. If you have a health condition that requires regular care, you may need to increase your savings cushion to cover those expenses until you become eligible.
Where to Save Your Money
It’s also important to think about where to keep the money you’re investing for retirement at 62. There are different retirement plans that you can use to invest, starting with a 401(k).
A 401(k) plan is generally a workplace plan that allows for tax-advantaged investing. Contributions are deducted from your taxable income and grow tax-deferred. Once you retire, withdrawals are taxed at your ordinary income tax rate.
You can begin making withdrawals penalty-free at age 59 ½, or potentially earlier if you meet Rule of 55 guidelines. This IRS rule enables you to avoid early withdrawal penalties if you leave your job and withdraw from your 401(k) the year you turn 55.
A 457 plan is another option for saving in the workplace. These plans are offered by state and local governments as well as certain non-profits, and they work similarly to 401(k) plans. Whether you have a 401(k) or 457 retirement account, investing consistently matters if you’re planning to retire at age 62.
The good news is that you can fund a 401(k) or 457 plan automatically through salary deferrals. You can adjust the amount you save each year as you get raises to help you get closer to your goals. And if your employer matches contributions, that’s free money you can use to plan for early retirement.
Benefits of Investing for Retirement at 62
The chief benefit of investing for retirement at 62 is that you can grow your money faster than you would by saving it.
When you put your money into the market, you can potentially earn higher returns than you would by keeping it in a savings account or a certificate of deposit (CD). The trade-off, of course, is that you’re also taking more risk by investing versus saving.
It’s important to choose a retirement plan that fits your investment goals. With a workplace plan, you’re typically offered a range of mutual funds and exchange-traded funds (ETFs). The investments you choose should reflect both your risk tolerance and your risk capacity, meaning how much risk you need to take to reach your financial goals. Take too much risk and you could lose money; take too little risk and your money won’t grow enough to fund an early retirement.
It’s also important to consider the fees you’re paying for those investments. Mutual funds and ETFs have expense ratios, which determine how much it will cost you to own them on a yearly basis. The higher the fees, the more they can eat into your returns.
Considerations for Retirement at 62
So, can you retire at 62? It can be a difficult question to answer if you’re not considering all the factors that affect your decision. If you have early retirement in your sights, then there are several things to weigh.
Medicare eligibility doesn’t begin until the year you turn 65. So, you’ll need to consider how you’ll pay for medical care in the interim. You could purchase private insurance or continue COBRA coverage through your former employer, but either option could be expensive.
Long-term care is another consideration. The monthly median cost of long-term care ranges from $1,690 for adult day care to $9,034 for a private room in a nursing facility, according to Genworth. Long-term care insurance can help with some of those costs but if you don’t have this kind of coverage, and you or your spouse requires this type of care, it could eat into your savings.
Some household expenses in retirement could be lower. For example, if you move to a smaller home, you might have a lower mortgage payment. Utility bills may also decrease with a smaller home. Or you might have no mortgage payment at all if you’re able to pay off your home loan when you retire.
On the other hand, your household expenses could increase if you move to a more expensive area. Buying a retirement home in southern Florida, for example, could easily be more expensive compared to living in the Midwest. And your expenses could also climb if your adult child or grandchild unexpectedly moves in with you.
Lack of Income
Retirement generally means that your regular paychecks go away. Instead, you live on savings, investments, Social Security, pensions, or some combination of those things.
If you want to retire at 62, you’ll have to think about how much of an impact a lack of steady income might have financially. You may not miss those regular paychecks if you’re able to draw enough from savings, investments, and other income sources in retirement.
But if you’re in a pinch, you may need to consider ways to make up for a shortfall, such as getting a part-time job or starting a business or side hustle.
It’s also important to consider your savings withdrawal rate. This is the rate at which you draw down your savings and investments monthly and annually to fund your retirement lifestyle. The 4% rule is an often-used rule of thumb for determining retirement withdrawals.
For example, say that you’ve saved $500,000 for retirement by age 62. Following the 4% rule, you can withdraw 4% of your savings to live on each year. If you stick to that rule and your portfolio continues to generate a 3% annual rate of return, then $500,000 would be enough to last you until age 97.
That assumes a 3% inflation rate. If inflation is higher at 8%, your money would run out by age 82. So, inflation is another important consideration to factor in when deciding if you can retire at 62.
Social Security Benefits
Determining a day to retire matters if you’re planning to take Social Security benefits at 62. If you’ll be relying heavily on those benefits for income, it’s important to apply in a timely manner so they kick in when needed — but you get the maximum amount possible under the circumstances.
When deciding when to retire, remember that taking Social Security at 62, or any other time before your full retirement age, will reduce your benefit amount. Working part-time can also reduce your benefits if you’re earning income above certain thresholds. Meanwhile, you could increase your benefit amount by delaying benefits up to age 70. Think about how important Social Security is for completing your retirement income picture and when you’ll need to take it.
Investing for Retirement
Whether you’re planning to retire at 62 (or any age), having a plan can work in your favor. Estimating your expenses, setting a target savings goal, and investing in your workplace retirement plan can all help you to get on the right track.
Is it a good idea to retire at 62?
Retiring at 62 could be a good idea if you can afford it and you’ve planned for any what-if scenarios that could affect your ability to cover your expenses. If you have significant amounts of debt and minimal savings, however, retiring at 62 may do more harm than good.
How can you retire at 62 with little money?
Retiring at 62 with little money requires careful planning to understand what your expenses will be, how much money you’ve saved, and how long that money will last. Supplementing savings with Social Security benefits or a pension can help, though you may need to plan to live much leaner in order to stretch your dollars.
What are the benefits of retiring after 62?
The longer you wait to retire, the more time you have to invest and build wealth. Delaying retirement after 62 can also increase the amount of benefits you’re eligible to receive from Social Security.
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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