Early Retirement: A Reality for Most Americans

Many Americans plan to retire at 65, but the reality is that most people step away from the workforce much earlier — often not by choice. According to new research from the Transamerica Center for Retirement Studies, the median retirement age in the U.S. is actually 62, with nearly 60% of retirees saying they retired earlier than they originally planned.

The reasons for this early exit from the workforce vary, but health issues are the most common factor. Almost half of those surveyed cited health-related reasons, such as physical limitations or disability, for their unplanned departure. Other contributors included job loss or organizational changes within their employers, which led to a premature retirement.

Financially Unprepared for Early Retirement

While the decision to retire early is often made out of necessity rather than desire, it underscores a broader issue: many Americans find themselves retiring without the financial security they had hoped for. The research also points to a key concern: older Americans are living longer. The typical respondent in the Transamerica survey believes they will live to age 90, meaning they may need to support themselves financially for decades after retiring.

"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," Catherine Collinson, CEO and president of the Transamerica Center for Retirement Studies, explained to CBS MoneyWatch.

For those who had to retire earlier than planned, the financial stability gap is concerning. Without sufficient retirement savings, many older individuals face the risk of outliving their funds, which could result in a fragile financial future.

The Early Claiming of Social Security Benefits

An important consequence of early retirement is the decision to claim Social Security benefits earlier than planned. While the full retirement age for Social Security is typically 66 or 67, many people begin claiming at age 62, the earliest age allowed, which comes with a significant reduction in monthly benefits — roughly 30% less than if they waited until full retirement age.

According to Transamerica’s survey, the median age for claiming Social Security was 63, which means many retirees are locking themselves into reduced benefits for the rest of their lives. While it is encouraged to delay claiming benefits until age 70 — to gain a 30% boost in monthly payouts — only 4% of retirees choose to wait that long.

"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," said Collinson. She suggests strategies like spousal claiming or temporarily returning to work to pause benefits and increase future payments.

The Psychological Factors Behind Early Claims

There is also a psychological component at play when it comes to early Social Security claims. Research from Duke University and Cornell University found that people who felt a stronger sense of ownership over their Social Security benefits were more likely to claim early. This sense of "ownership" can stem from the belief that Social Security payments are personally theirs, even though these benefits are funded by current workers, not individual contributions.

Additionally, loss aversion — the fear of missing out on benefits if they don't live long enough — can drive people to claim early. John Payne, a professor emeritus at Duke University, pointed out that this fear can lead individuals to make financial decisions that are not in their best long-term interest.

About 60% of retirees rely on Social Security as their primary source of income, highlighting how crucial the program is for older Americans. In contrast, only 10% of retirees rely on 401(k)s or similar plans for their income.

Navigating Early Retirement: Health, Skills, and Financial Literacy

For those still in the workforce, the data serves as a cautionary tale. The fact that so many people are forced to retire early due to health problems or job changes underscores the importance of staying proactive about health, maintaining relevant skills, and preparing financially for the unexpected.

Collinson advises people to focus on staying healthy, keeping their professional skills up-to-date, and educating themselves about retirement planning. Saving consistently and building a diverse retirement portfolio are key strategies for avoiding financial instability in the future.

Even if early retirement happens unexpectedly, a well-thought-out financial plan can help individuals navigate the shift and ensure they have enough to maintain their lifestyle well into retirement.

A Positive Outlook: Retirement Enjoyment Despite Challenges

Despite the financial and personal challenges, most retirees report being relatively happy with their decision to retire, even if it came sooner than expected. According to the study, nearly 90% of retirees say they are generally happy in retirement, with many enjoying close relationships with family and friends.

"One of the things that stands out is retirees are really enjoying their time in retirement, which I think bodes well for all of us," said Collinson. “They’ve made some adjustments, especially to their financial situation, and overall they are doing well.”

Americans may dream of a stress-free, financially independent retirement, but for many, it’s more about the freedom to enjoy their time as they choose. Even though financial challenges remain, retirees are adjusting and finding fulfillment in the lifestyle that retirement offers.