Early retirement may sound like a dream come true — however, some Americans have encountered the various problems that can arise once those regular paychecks stop.
In fact, many retirees who left the workforce at a younger age now have regrets. According to research from the American Association of Retired Persons (AARP), more than one-quarter of retirees ultimately found they had to spend more money on medical expenses and housing than they’d anticipated.
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Retiring early can leave you with less of a nest egg to cover those unexpected expenses and the rising cost of living.
Here are five key things many retirees would change if they could go back in time.
1. Claiming Social Security too early
Many people may assume that retirement automatically means dipping into Social Security (SSA). The reality, however, is that you can retire without claiming those benefits if you have enough money set aside to get you through those first few years.
Unfortunately, most people don’t — and many early retirees regret how soon they claimed their Social Security benefits.
Research from the National Bureau of Economic Research (NBER) revealed that one-fifth of older Americans wish they had put off their Social Security claim. This is understandable, given that each month you delay a benefits claim can result in an increase in your monthly income.
Delaying your retirement until the age of 67, for example, could lead to a 24% increase in the standard Social Security benefit.
Early retirees are even more likely than the average senior to wish they’d made different choices, as a claim of benefits at 62 with a full retirement age of 66, for example, could shrink a standard benefit by 25%.
With half of the 65+ population relying on retirement benefits to provide at least 50% of their household income, that’s a big hit to take.
If you want to find estimates on your benefit before making a decision on early retirement, the SSA has a variety of helpful tools on its website, which can help you understand the full impact of working fewer than 35 years.
2. Not saving enough before retiring
More than half of respondents to the NBER survey on financial regrets said they wish they had saved more money before retiring. By comparison, another study conducted by MedicareFAQ found this number was even higher — with 86% wishing they had more money set aside, while 60% admitted they didn’t start investing in retirement funds early enough.
For early retirees who must rely on their savings for more years than the average senior, having too little savings can be a serious concern. Running out of money in your 70s or 80s, after decades out of the workforce, is not a problem that’s easily solved.
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3. Failing to make a healthcare plan
Roughly three-quarters of retirees reported concerns about their health in older age, according to research from the TransAmerica Institute. In addition, 52% percent of retirees told MedicareFAQ they wish they’d prioritized their health more before retiring.
Unfortunately, early retirees can find themselves in dire financial straits if they fail to plan for healthcare costs. While it’s a common assumption that Medicare will cover most medical needs, this couldn’t be further from the truth.
Fidelity’s 2023 Retiree Health Care Cost Estimate revealed that the average senior person could incur out-of-pocket costs of $157,500 (or $315,000 per couple) for healthcare in retirement, even with Medicare.
Early retirees may face bigger problems than most when it comes to affording health care because Medicare doesn’t take effect until age 65. Anyone who left the workforce prior to that time may need to rely on expensive private health insurance without help from an employer to pay premiums.
4. Foregoing long-term care insurance
Seven out of 10 people aged 65 and over will require long-term care in their lifetime, and the Genworth Cost of Care survey revealed a semi-private room in a nursing home could come at the cost of $8,669 per month, while a room in an assisted living facility averages $5,350 a month.
Looking at those numbers, it’s not surprising the MedicareFAQ study revealed that one-third of retirees wished they had purchased long-term care insurance. Unfortunately, the longer you wait to buy this coverage, the higher the premiums become.
Purchasing a policy or paying for a nursing home room later in life may be an especially big challenge for early retirees who may have already exhausted their resources by the time they’re in need of that type of care.
5. Leaving the workforce at a young age
Many retirees who left the workforce before age 62 ultimately regretted the fact that they retired so soon, for a variety of financial reasons.
About one-third of retirees wished they’d stayed on the job for longer, according to the NBER study. Of those surveyed, 52% said they regretted undersaving, while 19% revealed they regretted claiming Social Security too early.
Before settling on early retirement, be sure your finances are in good shape, research how claiming Social Security at different ages will impact your benefit amount, and create a blueprint for how you plan to spend your retirement — and factor in those additional costs for home renovations or travel.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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