Dave Ramsey Says Retiring at This Age Is a Big Mistake

Hitting age 62 may feel like crossing the natural career finish line. It's also the average retirement age in the U.S., and the earliest age workers can begin claiming Social Security benefits. These factors combined make age 62 seem like an appealing milestone for those eager to leave the workforce behind.

But financial personality Dave Ramsey believes that choosing age 62 to retire can create financial challenges, some that many people may not anticipate. In a recent interview with Kiplinger, Ramsey identifies retiring at 62 as one of the biggest retirement mistakes a person can make.

Here's why he's so concerned about this common retirement milestone and how you can take (or leave) his concerns when gauging if you are on track for retirement.

The hidden cost of taking Social Security at 62

One of Ramsey's biggest alarm bells is deciding to claim Social Security as soon as you are eligible. For workers who start benefits at this point (age 62), they will see their monthly checks reduce by as much as 30% when compared to waiting until full retirement age.

Because this reduction is permanent, it can equate to thousands of dollars in lost income over your golden years, which could last multiple decades.

Healthcare can be a major expense before age 65

The primary source of health insurance for retirees is Medicare, and it doesn't begin until Age 65. Thus, choosing to retire before you have Medicare eligibility can create a potentially expensive gap for anyone who retires at 62 without employer-sponsored coverage.

Things like health insurance premiums, deductibles, and out-of-pocket medical expenses can begin to add up quickly. Plus, these healthcare costs would put pressure on retirement savings years before medicare coverage becomes available.

Fewer working years equate to less time to build savings

Sure, it's natural not to want to work your life away. But every year spent working provides another opportunity to contribute to a retirement account, which benefits from investment growth.

Choosing to retire at 62 instead of 65 or later means fewer years of saving and fewer years of taking advantage of compounding. You are also shortening the period when you're earning income and extending the period when you are relying on your retirement nest egg.

A longer retirement increases the risk of running out of money

With modern medicine and scientific advancements, people are now living longer than previous generations. But a longer life also means your retirement savings may need to last 25 to 30 years or more. Ramsey argues that many workers, unfortunately, underestimate this reality.

Retiring earlier is going to increase the number of years you'll depend on your investments. This also makes it more likely that unexpected expenses or economic downturns strain your finances.

Carrying debt into retirement can cause a budget strain

Ramsey is incredibly outspoken and firm on his stance about entering retirement with debt. Retiring with any debt, mortgage included, occupies your income needed to cover everyday expenses.

He encourages workers to eliminate any loans, credit cards, and other debts before retiring, stating, "Attack that debt with intensity now, before you step into your golden years."

Why Ramsey says too many Americans retire before they are ready

According to Ramsey, many people choose a retirement age based on tradition or even eligibility milestones rather than their financial situation.

His position is blunt: "People underestimate how long they'll live and how much money they'll need. They retire broke or way too early. It's like jumping out of a plane without checking your parachute."

So, when workers overestimate how far their savings will stretch while underestimating their future expenses, retirees may be vulnerable to financial stress just a few years after leaving the workforce.

Ramsey's retirement readiness checklist: Debt-free, funded, and budgeted

As for being retirement-ready, Ramsey's standard is straightforward. He recommends entering retirement with no debt, a fully funded nest egg, and a realistic monthly spending plan. Rather than targeting a specific age, he believes workers should focus on reaching these financial milestones first and continue working if necessary to get there.

It's not too late to recover from an early retirement mistake

Ramsey acknowledges that some people realize after retiring that they left the workforce too soon without enough savings. If you find yourself in this situation, there are potential solutions to course-correct. You can return to work, downsize, or reduce expenses in your budget. If you've yet to retire, you can save more or even delay retirement to get yourself in a better position later.

Ramsey says, "It's never too late to start doing the right thing. You may not have 40 years left, but you've got today. And that's enough to start turning the ship around."

Bottom line

Ramsey's argument isn't necessarily about age 62 itself, but more so about whether your finances are ready for retirement. Claiming Social Security early, paying for healthcare before Medicare, and relying on savings for a longer period can create challenges you may not anticipate. This is why he recommends focusing on financial readiness rather than a specific retirement date.

A practical reality is that retirement doesn't have to be an all-or-nothing decision. For workers who are eager to leave full-time employment but aren't financially prepared to retire completely, they can consider a phased retirement. Additionally, part-time work arrangements can provide extra income while you further build your retirement plan and allow your investments to grow.