Many people in their late 50s and early 60s find themselves asking whether they can retire earlier than they planned. Sometimes it’s by choice, sometimes it’s a layoff or a buyout offer. Either way, early retirement can work, but it puts more pressure on your savings than retiring at 65 or later. Here are the questions I work through with clients who are considering it.
When should you start Social Security?
You can start Social Security as early as 62, but your benefit is permanently reduced if you claim before your full retirement age, which is 67 for anyone born in 1960 or later. Claiming at 62 reduces your benefit by up to 30%. If you claim early and keep working, the earnings test can also temporarily reduce your checks: in 2026, $1 is withheld for every $2 you earn above $24,480.
For most people, waiting at least until full retirement age is worth it, and every year you wait past that up to 70 increases your benefit by 8%. Claiming earlier can make sense if you are in poor health, if you need the income and have no other good source, or as part of a coordinated plan with a spouse. Social Security Benefits and You covers the details.
How will you pay for health insurance?
This is often the biggest obstacle to retiring before 65, when Medicare begins. If your employer paid most of your premiums, you could face hundreds or even thousands of dollars a month in new costs, plus deductibles, copays, and dental and vision care. Few employers still offer retiree health coverage.
The Affordable Care Act marketplace remains an option, and insurers can’t turn you down or charge more for pre-existing conditions. However, the enhanced premium subsidies that had been in place since 2021 expired at the end of 2025. Premium tax credits are now generally available only if your income is at or below 400% of the federal poverty level, about $62,600 for an individual in 2026. Earn a dollar more and you can lose the subsidy entirely, and unsubsidized premiums for people in their 50s and early 60s have risen sharply. Managing your taxable income in the years before Medicare has become much more important.
What does early retirement mean for your investments and withdrawals?
Retiring early means drawing on your savings for more years, often before Social Security and any pension begin. Large withdrawals in the first years of retirement have an outsized effect on how long your money lasts. A few things to consider:
- Adjust your withdrawal rate. Many planners start from about 4% to 5% of your portfolio in the first year of a traditional retirement. If your savings need to last longer, a lower starting rate may be more prudent.
- Choose which accounts to tap first. Withdrawals from IRAs and 401(k)s before 59½ may be subject to a 10% penalty, although there are exceptions, such as leaving your employer in or after the year you turn 55 for that employer’s 401(k). Taxable accounts are often the first source of income.
- Use the low-income years wisely. The years between retirement and Social Security can be a good window for partial Roth conversions, but more income can also reduce ACA subsidies, so the two decisions need to be made together.
- Keep a growth component. Your money may need to last 30 years or more, so you will likely need some stocks or other growth investments to keep up with inflation, even though they are more volatile than bonds.
If you’re thinking about retiring early, start with a detailed plan of your expected income and expenses year by year until Social Security and Medicare begin. A financial advisor can help you test whether the numbers work and what adjustments would make them work.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
