New research from the Transamerica Center for Retirement Studies reveals that many Americans retire far earlier than anticipated often due to unforeseen circumstances rather than personal choice. This unexpected early retirement can have significant financial implications, as individuals may not have fully planned or saved for the transition. Understanding the factors that lead to this early retirement can help individuals better prepare and navigate their financial futures, ensuring they are not caught off guard when the time comes.
Why do people retire earlier?
Despite the popular belief that most individuals retire at 65, the research by Transamerica Center for Retirement Studies reveals otherwise. In the U.S., the median retirement age is 62, with nearly 60% of retirees reporting they left the workforce earlier than planned. Health issues, including physical limitations and disability, were the primary reasons for early retirement, affecting almost half of those surveyed. Other factors include the following:
- Job loss
- Organizational changes
This highlights the importance of preparing for retirement earlier, accounting for potential unforeseen circumstances.
The findings from the research highlight the vulnerability of retirement for many Americans, as many older workers retire sooner than they planned which means they are not as financially prepared for retirement as they would have expected. With life expectancy rising, retirees are facing the challenge of supporting themselves financially for decades, potentially depleting their savings. This underscores the importance of planning for unexpected changes and ensuring financial security throughout retirement.
“Many of them are financially precarious — if they were to have some sort of major financial shock or their health would decline and needed long-term care, they would have a hard time affording it,” said Catherine Collinson, CEO and president of the Transamerica Center for Retirement Studies. Retirees who have to leave behind their careers unexpectedly is a “cautionary tale for people currently in the workforce,” Collinson said.
Social Security and early retirement
Early retirement can be problematic for Social Security beneficiaries, as it forces individuals to claim benefits at a reduced rate. Claiming before the full retirement age (typically 66 or 67) results in lower monthly checks, which can significantly impact long-term financial security. Since Social Security is designed to replace only a portion of pre-retirement income, starting benefits early may leave individuals with insufficient funds to cover their expenses, especially as they face a longer retirement period due to increased life expectancy.
Waiting until age 70 to claim Social Security benefits offers a significant advantage, increasing monthly payments by more than 30%. Despite this incentive, only 4% of retirees choose (or are able) to wait until the maximum age to start receiving their benefits, according to Transamerica. Many retirees who have to opt to claim earlier miss out on this financial boost, which could impact their long-term financial security during retirement.
“One of the most important things they can do is fully understand their benefits, and if they have any options to stretch out those benefits,” Collinson said. “If it’s a spousal situation, maybe if they need the income, one claims first and the other later, or if they can jump back in the workforce and hit the pause button on Social Security and get more income.”
Start planning for an unexpected future now in 2025
Financial planning is crucial, especially for those who may need to retire earlier than expected. Unexpected health issues, job loss, or other factors can force individuals into early retirement, leaving them with fewer years to save and invest. Without proper preparation, relying solely on Social Security or other limited income sources may not be enough to maintain a comfortable lifestyle. By saving aggressively, diversifying investments, and considering retirement strategies, individuals can better position themselves to handle the financial challenges of an early retirement.
