​​Retirement Planning: How To Retire At Any Age

Once upon a time in America, you would turn 65, get your golden watch and start cashing Social Security checks. But retirement looks different these days, and the age you choose to retire can range widely.

Just one in four Americans aged 45 to 54 is aiming to retire at 65, according to the Employee Benefit Research Institute (EBRI). The rest are split between early birds (40% expect to retire before 65) or later exits (36% expect to retire after 65).

While the path to a secure retirement can be difficult at any age, here are the key pitfalls you’ll want to avoid whether you are planning an early, normal or late retirement.

How to Retire Early

Dreaming of retiring in your early 60s or even earlier? Here’s how you plan for the best early retirement.

Assume You Will Earn a Lower Rate of Return

Yes, you’re still quite young—and generally speaking, younger people should be in more aggressive, stock-heavy portfolios.

But once you stop working, “you need to think more about protecting your portfolio,” says Nick Foulks, of Minneapolis wealth management firm Great Waters.

For instance, you might create a bucket of money that will cover your spending for at least a few years, and keep that in conservative investments such as cash and bonds. That will likely mean your portfolio’s overall rate of return will be less than when you were working and investing more aggressively.

Plug in lower expected rates of return on a retirement calculator to get a sense of if your portfolio will actually be able to support an early retirement.

Budget (a Lot) for Health Insurance

If you’re going to need to purchase health insurance coverage before age 65, when Medicare kicks in, the monthly premium for an individual plan sold on the ACA Marketplace “can be like another mortgage payment,” warns Beau Henderson, founder of RichLife Advisors in Gainesville, Ga.

A 55-year-old, non-smoking, childless couple with a household income of $100,000 would qualify for a premium subsidy of around $800 for a Silver plan in 2022. Even so, they will still be on the hook for another $700 per month just for their share of the premium. And if they actually need care, the annual out-of-pocket cost can be more than $17,000 in 2022 with a Silver plan.

That’s just one reason why early retirees may consider part-time work or relying on a still-working partner’s plan: Health benefits could save them thousands of dollars a year and provide better quality insurance.

Watch Out for Early Withdrawal Penalties

Any money you take out from a retirement account before 59 ½ may get slammed with taxes and penalties, depending on what kind of account you own and how long you’ve owned it.

Money you withdraw from a traditional IRA before age 59 ½ could earn you a 10% early withdrawal penalty, plus income taxes. Roth IRAs are a little different; you can generally take out your contributions at any time, for any reason, tax- and penalty-free. But you may be penalized and taxed on any earnings, though you can avoid penalties if you first funded a Roth account at least five years ago.

Generally speaking, the same rules apply for workplace retirement plans, though Roth 401(k)s do not allow you to exclusively withdraw contributions, meaning you may be taxed and penalized for any money you take out.

You can, however, make penalty-free withdrawals from your workplace 401(k) if you wait to leave that job until the calendar year you turn 55. The so-called Rule of 55 doesn’t work for old 401(k)s you left at former jobs, though. For those you need to wait until 59 ½ to make penalty-free withdrawals or roll them into your current employer’s plan.

Think Hard Before Starting Social Security Early

Yes, technically you can start collecting Social Security at age 62, but doing so permanently reduces your monthly benefit by up to 30% of what you would qualify for at your full retirement age—between age 66 and 67 for anyone born in 1943 or later.

How to Retire at Normal Retirement Age

Even if you’re simply planning to retire at a “normal” age, like 65, you’ll want to make sure you’re covering all of your bases.

Save Like You’re Going to Retire Earlier

You might intend to work until 65 or so, but many people with the same intention end up retiring sooner than that, whether because of illness, a layoff, the need to care for a loved one or another reason.

According to EBRI, while the median expected retirement age is around 65, the median actual retirement age is 62. In short, you may end up tapping your retirement savings years, or even a decade, before you plan to.

That’s why you should make sure you’re making use of every tax-advantaged retirement account you can. As the old rule of thumb says, aim to put away at least 10% to 15% of your income, or alternatively half of every raise, when you’re working.

And then once you turn 50, take advantage of federally approved “catch-up contributions” to your retirement accounts. You can contribute an additional $6,500 to 401(k)s and $1,000 to IRAs each year you’re 50 or older.

Think Critically about Housing

If you intend to stay in your current home, you’ll want to make sure it’ll be comfortable for an older you. Tackle any age-in-place renovation projects before you retire as it can be easier to arrange financing when you’re still earning income.

And if you’re the least bit concerned about your retirement finances, today’s strong housing market likely means you could downsize, or relocate, and walk away with extra retirement padding while reducing your housing costs.

Budget for Medicare Costs

You’re eligible for Medicare once you turn 65, but Medicare is not free.

In 2021, enrollees paid a minimum monthly premium of nearly $150 for Medicare Part B, and in 2022, this will rise to just over $170. Households with higher income can be charged even more. There are also other premiums, copays and coinsurance you’ll also need to cover.

And if you plan to keep working past 65, be careful with how workplace health insurance will handle your claims. If your employer has fewer than 20 workers, you still need to enroll in Medicare when you turn 65; otherwise you could be hit with a late-enrollment penalty when you do enroll.

More importantly, many insurers of small employers will presume Medicare is your “primary” payer once you are eligible for Medicare. You don’t want to learn about that when a claim you make to your workplace plan is turned down after you’re 65, and you’ve yet to enroll in Medicare.

Consider Holding out on Social Security

If you wait until age 65 to retire, you’re probably pretty close to your Social Security full retirement age, which is between 66 and 67 depending on the year you were born. That means you’re a stone’s throw away from when Social Security will pay out 100% of what you’re entitled to.

If you want to stop work before your full retirement age, you might consider part-time work, or tapping your savings instead of starting your benefits before you hit your full retirement age. Consider consulting with a financial advisor to see if you might be able to retire when you want, but delay claiming Social Security until you are 70.

Social Security will increase your benefit by 8% for every year you wait to claim benefits between your full retirement age and age 70. That’s a guaranteed return—that’s also inflation adjusted—and you can’t get that in any investment these days.

How to Plan for a Late Retirement

If you love what you do, retiring late has no downside. But if you’re planning on retiring later because you don’t have enough saved, that can be a risky bet. Here’s how you can minimize that risk:

Don’t Only Work Longer—Save More Now

Even if your health remains solid and your will to work keen, you may not be able to maintain your highest earning years through age 70. While more than 25% of workers surveyed by EBRI in 2021 say they expect to work until at least age 70, just 6% of retirees surveyed made it that long.

“Retiring at 70 is a great goal,” says Henderson. “But there’s a really good chance you won’t make it that long, so don’t want to let up on savings while you can.”

Moreover, research from the Urban Institute and ProPublica found that more than half of adults lost a full-time job after they turned 50, and only 10% of those workers who were fired or laid got another job that paid as well.

In short, as with those retiring at 65 or full retirement age, you’ll want to make sure you’re putting in as much as you can into your retirement accounts while you have the highest possible income.

Don’t Presume You Don’t Need Medicare While You’re Working

Just because you have insurance through work doesn’t mean you won’t need to sign up for Medicare when you’re eligible.

If you miss your initial enrollment period for Medicare you may have to pay a 10% premium penalty for Medicare Part B and Part D for each year you should have been enrolled. Those penalties stick with you for life. If your employer has fewer than 20 employees you should plan on signing up right around your 65th birthday.

Read more: How To Enroll In Medicare