8 Costly Mistakes You Don’t Want to Make if You Retire Early

If you retire early, making these mistakes could leave you wishing you hadn’t.
Last updated Feb. 17, 2023 | By Katelyn Washington Edited By Ellen Cannon
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Retiring early (before your full retirement age) may be a goal for many people. But retiring too early may cost you money. 

Before you choose your retirement age, consider how much money you’ll sacrifice. These common mistakes can help you decide.

Do you dream of retiring early? Take this quiz to see if it's possible.

You claim Social Security at age 62

Nina Lawrenson/peopleimages.com/Adobe senior woman on laptop for finance planning

While you can claim Social Security as early as age 62, that doesn’t mean you should. You’ll receive higher monthly benefits if you wait the additional years until you reach your full retirement age. 

In some cases, you could receive as much as 30% less than you would if you waited — and that’s for the rest of your life.

Waiting until age 70 can provide even higher monthly benefits, but it isn’t the right choice for everyone. You can estimate your monthly benefit amount by creating a “my Social Security” account.

You cancel your health insurance before you're 65

Maksym Yemelyanov/Adobe Health Insurance cards

Even though you can collect Social Security at age 62, you can’t begin Medicare until age 65. This means you’ll still need to pay for health coverage. Medical expenses are costly and may require you to dip into your savings.

If you have good health benefits through your employer, it might prove worthwhile to remain at your job until you qualify for Medicare.

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You haven't saved enough money

manassanant/Adobe elderly woman counting coins money

Housing and utility costs don’t stop once you exit the workforce. Grocery costs, medical bills, and transportation expenses still accumulate. Don’t forget to plan for inflation and unexpected and emergency costs too.

Most financial experts suggest you’ll use 80% of your pre-retirement income once you retire. Many factors determine the dollar amount you’ll need to save for retirement, including your life expectancy and where you live. 

You haven’t paid down your debt

Kirsten Davis/peopleimages.com/Adobe sad retired couple with debt

You’ll want to retire with as little debt as possible. This doesn’t necessarily mean you need to be debt-free, but you should have paid off a significant amount of any high-interest debt and have a plan in place for paying any you haven’t.

Paying off credit card debt is one of the most important things you can do, as credit cards generally have the highest interest rates of any type of debt. 

If possible, consider paying off large loans, such as your mortgage or car. Not having these expenses during retirement will give you more money for daily living.

You don’t have a plan to supplement Social Security

JackF/Adobe senior man greengrocer worker

Social Security benefits will not replace your salary, so it’s essential to have a plan to supplement the payments, especially if you are concerned about your savings.

Working during retirement is one way you can supplement Social Security. You can work without seeing your monthly benefits reduced so long as you don’t surpass a specific dollar amount. 

In 2023, you can make up to $56,520 if you are at full retirement age but only up to $21,240 if you are below your full retirement age.

Pro tip: You can figure out what your full retirement age is on the Social Security website. It varies depending on the year you were born.

You haven’t diversified your investment portfolio

Deen Jacobs/peopleimages.com/Adobe senior couple on sofa with bills

Not having any investments may be a mistake, especially if you want to retire early. But not having a diversified portfolio can hurt you as well. Investing in different types of assets will lessen the blow if one type doesn’t perform well.

If you are new to investing, having a diversified portfolio can also help you feel more at ease by minimizing risk. You can always work with a good financial planner to help you get the most from your investments.

You don’t take advantage of your 401(k) match

Vitalii Vodolazskyi/Adobe magnifying glass on document with 401k plan besides calculator on table

If you leave your job before full retirement age, you could miss out on years’ worth of employer contributions. 

Taking advantage of employer-matched contributions is an excellent way to boost your 401(k) throughout your working life, and especially before you retire.

You fail to consider taxes

pikselstock/Adobe senior woman writing something on paper

Some retirement income is taxed. While you might pay federal income tax on Social Security benefits and pensions, whether or not you pay state tax will depend on where you live.

If you continue working or open a business during retirement, you’ll also need to pay taxes on that income. It’s another reason you should ensure you have a well-thought-out financial plan before retiring early.

Bottom line

Monkey Business/Adobe senior couple walking in the park

Retiring early is possible and is a good choice for some people. But for others, it can cause financial strain or even devastation.

If you have a long life expectancy, retirement could last decades, which means your savings will need to last that long as well. 

According to Census Bureau data, 12.9% of retirees aged 80 and older lived in poverty in 2021. This is much higher than other retired age groups, and extended retirement is likely a contributing factor.

Weigh the financial risks carefully before you see if you can retire early. It will impact your finances for the rest of your life.

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Author Details

Katelyn Washington Katelyn Washington is a writer with a passion for finance and business. She put herself through business school as a single mother of three and has had pieces commissioned by national magazines. When she’s not writing, she enjoys spending time with her family and editing manuscripts for indie authors.