Retire at 62 or 67? The Long-Term Cost Difference Is Bigger Than You Think

On the surface, retiring at 62 sounds like a dream. After all, who wouldn't want to retire a little early? However, before you hand in your notice and throw a retirement party, take some time to consider the financial impact that retiring early may have on your overall lifestyle.

For some, retiring early and potentially living on less income may be worth it for the freedom it brings. For others, working a few more years and topping up their 401(k) retirement plan may be a better choice. Here's everything you need to know if you're considering retiring early.

The full cost of retiring at 62

Many people focus on their 401(k) balance as the main metric to consider when retiring. Although the amount of your nest egg is incredibly important, there are also other factors to consider. 

For example, if you retire at 62, you'll still need to pay for health insurance before Medicare kicks in. If you take Social Security early, your checks will be smaller. If you need to live off your 401(k) retirement plan, you'll likely need to carefully consider your withdrawal strategy to ensure your nest egg lasts.

These costs can make for an expensive few years, and if you need to withdraw from your retirement accounts to pay to live, the long-term costs of these early withdrawals may be more than you expect.

The Social Security reduction

Many workers consider retiring at 62 versus 67 because they can start collecting Social Security checks at age 62. However, if you elect to get your Social Security checks at age 62, that triggers a permanent 30% reduction in the amount for those born in 1960 or later.

To give an example, if you're eligible for a $2,000 monthly benefit at age 67, taking it at age 62 means you'd get $600 less every month. For some, this may not seem like a lot, but when viewed annually, it's a reduction of $7,200 a year every year, for life.

The health care coverage gap

One of the biggest considerations, aside from a reduction in income from getting Social Security early, is the cost of health care. Notably, Medicare coverage doesn't start until age 65, regardless of when you retire. So, if you stop working at age 62, you'll be on the hook for paying for your own health insurance for three years.

Some workers will be able to join their spouse's health insurance plan if they're still working. Another option is to pay for COBRA, which can be pricey. Early retirees can also pay for an ACA marketplace plan. Taking into account the cost of these premiums is an important part of planning to retire early.

Enhanced ACA premium tax credits expired in 2025

In previous years, early retirees may have qualified for an enhanced ACA premium tax credit, which reduced premiums for people below certain income thresholds. 

However, these subsidies expired in 2025, which can make ACA marketplace plan premiums more costly for early retirees. To see how much an ACA plan would cost, you can get an estimate on Healthcare.gov under the "browse plans and costs" tab.

The impact of early retirement on your portfolio

It's also important to consider the significant long-term cost that retiring early has on your portfolio. After all, retiring five years earlier means five fewer years of contributions. If you retire at 62, you'll also miss out on one year of eligibility for super catch-up contributions.

If you need to live off of 401(k) contributions right away, that's also five fewer years of compounding with a portfolio that needs to fund you for longer. Calculating the financial impact of this will be an important part of making your decision about when to retire.

Retiring at 62 is possible, but it will take planning

While this may seem like an argument against retiring at 62, it isn't. Rather, the goal is to encourage workers who are interested in an early retirement to fully understand the cost, especially the hidden ones. 

Retiring early means more years of freedom, but it typically requires spending time planning your retirement strategy. That includes researching where you'll purchase health insurance to deciding whether or not you'll take Social Security.

Whatever you choose, it's important to ensure that your income, wherever it may come from, can cover your expenses. Additionally, many financial experts also recommend having a cash emergency fund of 18-24 months to insulate you in case you have unexpected expenses or the market takes a significant dip.

Consult with a financial advisor if you have questions

If you're not sure whether or not retiring at 62 is right for you, you can always set up an appointment with a financial advisor. 

An advisor can make recommendations specific to your personal finances and help you evaluate the pros and cons of retiring at a certain age.

Bottom line

Ultimately, everyone deserves to have a stress-free retirement one day. However, achieving that takes a significant amount of forward planning. 

Of course, the age you're able to retire is largely based on your savings, your lifestyle, the cost of your basic necessities, and your insurance needs. A financial planner can help you see how your retirement savings stacks up so you'll hopefully feel financially ready when it's time to stop working.