Early retirement happens more often than expected – how to plan for it

Working longer is one of the best ways to close the retirement gap, financial experts say.

But there’s a big problem with that strategy: There’s no guarantee that it’ll work for long.

About half – 46% – of people retiring in 2025 did so earlier than expected, according to the Employee Benefit Research Institute, a think tank, which released its annual Retirement Confidence Survey on April 21.

Many do so for unexpected reasons, including health conditions, layoffs, or caring for a loved one, experts say.

Those curveballs can derail people’s retirement plans.

“People who retire early may end up with a worse-than-expected retirement and may need to rely on others, make significant lifestyle changes, and if they have a spouse, may change their spouse’s retirement plans,” Craig Copeland, director of wealth benefits research at EBRI, a think tank, wrote in an email.

EBRI polled 2,544 Americans age 25 and older in January. That sample includes 1,007 workers, 1,045 retirees and a sample of 492 caregivers.

Delaying retirement can have many positive financial effects: Such people do not have to live off their savings, as they receive regular income. They have plenty of time to save and for their assets to grow, hopefully. They may delay claiming Social Security benefits, which guarantee a higher monthly payment for the rest of their lives.

But early retirement can have the opposite effect, especially if it’s unexpected.

And people are “increasingly” retiring earlier than planned, Copeland said.

About 40% to 50% of retirees in any given year since the late 1990s say they retired earlier than expected, according to EBRI data.

A Gallup poll similarly found a common gap between retirement expectations and reality. In 2022, the average person said they expected to retire at age 66; that year, the average person retired at age 61, the most recent survey found.

Factors beyond human control were responsible for 76% of early retirement by 2025, according to EBRI. They included health problems and disabilities, as well as company changes such as downsizing, closing or restructuring.

More than half, 56%, of full-time workers in their early 50s are out of their jobs due to layoffs before they are ready to retire, according to a 2018 paper published by the Urban Institute, a think tank. The researchers analyzed data from 1998 to 2014.

“This can lead to workers not preparing themselves as they thought they would work for 5 or maybe 10 years but end up out of work and needing retirement benefits sooner than expected,” wrote Copeland. “This dramatically changes the number of retirees and leaves people with limited options as it is difficult to return to work after a health event or find a new job entirely as an older person.”

It’s important to have a “backup plan or contingency plan” when planning for retirement — otherwise, there aren’t many good options to help cover a sudden shortfall, Copeland says.

He recommends looking at two numbers: the amount of money you’ll need in retirement if you need to retire earlier than expected, and the amount of money you’ll need if you retire as planned.

There are some steps retired families can take with or in lieu of long-term planning, says Kamila Elliott, certified financial planner and CEO of Collective Wealth Partners, an Atlanta-based financial advisory firm:

• Reduce debt. Doing so while working can free up cash flow during retirement. This includes paying off credit cards, car loans, lines of credit and loans.

• Increase your retirement savings. Make the most of hosting donations when you qualify. People age 50 and older can contribute an additional $8,000 to their 401(k) and an additional $1,100 to their individual retirement account by 2026. Catch-up 401(k) contributions are even higher for savers ages 60 to 63: They could save an additional $11,250 by 2026.

• Get the necessary insurance. Obtaining and paying for policies such as long-term care before retirement can reduce retirement costs.

Someone who has to retire earlier than planned should consider delaying claiming Social Security and using a “bridge strategy” to draw assets from their retirement accounts or other investment accounts to fund those gap years, said Elliott, a member of CNBC’s Financial Council.

The best case is to wait until age 70, which maximizes your Social Security income, Elliott said. Or, at the very least, wait until full retirement age, when you are entitled to 100% of your earned benefits. That’s usually 66 to 67 years old, depending on your year of birth.