Want to Retire Early? Consider These Costs Before Calling it Quits.

Many people dream of the days when they won’t have to work. But an early exit from the workforce—whether chosen or not—can have huge ripple effects on your financial life and health insurance.

Surveys consistently find that many workers retire earlier than planned. A new study from Allspring Global Investments reported that 37% of respondents retired sooner than expected. The 2023 Employee Benefit Research Institute/Greenwald Research Retirement Confidence Survey found 46% retiring earlier than planned.

The biggest financial hit may be to your retirement savings. You could lose valuable years of contributions to Social Security—especially if you’re at your career peak earnings—and miss out on padding accounts like a 401(k) or IRA. Things can get worse if you have to dip into your nest egg ahead of schedule, diminishing compound interest and equity returns.

While some workers leave their jobs because they’ve met financial goals ahead of time, the majority depart due to layoffs or health concerns for themselves or a partner. Of the 46% who reported retiring early in the EBRI survey, 35% did so due to a health problem or disability and another 31% did so because of changes at their company.

“You have less time to save, and more time to live off it, so you’re getting hit on both sides,” says Nate Miles, head of retirement at Allspring Global Investments.

That’s all the more reason to save as much as you can, when you can. For 2024, the Internal Revenue Service allows savers age 50 and over to contribute an additional $7,500 to their 401(k) as “catch-up contributions,” for a total of $30,500. If you’re turning 50 at any time in 2024, you can start catching up now.

If you’re forced into early retirement and your health allows, taking on a part-time job can help bridge the gap until your planned retirement date. Even if it doesn’t cover all your expenses, part-time income could help you withdraw less from retirement accounts and delay claiming Social Security.

There’s a perennial debate over when to start taking Social Security; retiring early can complicate the math. People born in 1960 or later have a full retirement age of 67, meaning that’s when they’re entitled to 100% of their benefits. (For those born before, it’s slightly earlier.) Those who claim at 62 receive a benefit that’s permanently 30% less than it would be at full retirement age, while those who wait until 70 will receive 124% of the full benefit. It isn’t an all-or-nothing proposition, however: Every month you can delay claiming will put a little extra money in your check.

Health insurance is another big consideration if you retire before 65, the age when you’re eligible for Medicare. Laid-off workers are usually entitled to Cobra coverage for 18 to 36 months, but you typically have to pay the full cost of premiums plus a 2% administrative fee.

Thanks to Obamacare, insurance plans available through HealthCare.gov may be cheaper—especially since government subsidies have been expanded through the end of 2025. The downside: These plans usually come with high out-of-pocket costs. For marketplace plans this year, the out-of-pocket limit is $9,450 for an individual and $18,900 for a family.

Sue Shearer, a registered nurse in the Seattle area, originally planned to retire at 62 and stay on her husband’s health insurance until he retired at 67. He is two years older than she is, and when he decided to retire at 65, she changed course and kept her job.

“It made more sense to keep working, stash money away, and keep my own health insurance,” says Shearer, now 64 and happy she didn’t call it quits.

Write to Elizabeth O’Brien at [email protected]