Planning to Leave Work Before 65? 2 Important Things to Understand

Key Points

• If you retire before age 65, Medicare will not be available to you yet.

• Skipping health insurance can become an expensive mistake.

• If you claim Social Security as soon as you retire, your monthly benefit will be smaller, so that decision deserves careful thought.

Some people prefer to keep working until they reach 65, but there is no requirement to do that. If you have saved enough and feel ready for the next chapter, there is nothing wrong with stepping away from work before that age.

For anyone planning an early retirement, it helps to prepare in advance. Two issues matter especially.

1. Medicare will not be available yet

Many workers receive health insurance through their employer. Once you reach 65, Medicare usually becomes an option. If you retire before then, you will need another way to stay covered.

You may think you can go without insurance briefly and wait until Medicare starts. But even one medical emergency without coverage can disrupt your finances and wipe out savings.

If your current job offers solid coverage and you are close to 65, you may want to look into COBRA. That option lets you keep your workplace plan, though you pay the full premium without an employer contribution.

2. You will not receive full Social Security benefits right away

If you are at least 62 when you retire, you can begin Social Security. However, you will not get your full monthly benefit at that point.

Full benefits do not begin until age 67, which is the full retirement age for Social Security. Every month you claim benefits before that point permanently reduces the amount you receive.

Smaller checks may be fine if you have substantial savings and can manage with less income each month. If you would rather avoid a reduction, you will need enough savings to support you after leaving your job.

There is also another path. You could leave your full-time job and take a part-time position in a field you enjoy. That can create more free time without placing as much pressure on your retirement savings.

An early retirement can be an exciting milestone. But if you will not be 65 when you stop working, you need to think carefully about health insurance and the timing of Social Security so your finances stay on track.