The average retirement age always seems to be on the rise. Part of the reason for this is that people have to wait longer than ever before to collect full Social Security benefits. But there’s also the rising cost of living — and the current valuation of the dollar — to consider.
For many people, higher costs and Social Security are very real concerns that could delay their retirement. In a recent GOBankingRates survey, we found that roughly 63% of people don’t think they’ll be financially prepared to retire at the age of 65 and will have to wait a few more years before they can afford to leave the workforce.
The same survey also found that just over 70% of older individuals — ages 55 to 64 — are even less confident about retiring by 65.
If you’re wondering whether retiring at 65 is still financially viable for most Americans, you’re not alone. Here’s what experts have to say on the matter, as well as some ways to improve your financial preparedness so that you can retire when the time comes.
Is It Financially Possible To Retire at 65?
This is a tricky question to answer as everyone’s situation is different. For some, it is entirely possible to retire at 65 or even sooner. For others, it’s a bit more complicated.
“Retiring at age 65 is feasible. I’ve seen clients who planned earlier in their life for retirement, who are disciplined and worked hard and saved smart reach this milestone. Also, retiring at 65 is feasible for people who built in buffers for inflation for their retirement spending,” said Sindy Kong, a financial professional with Equitable Advisors.
“However, the reality is some people have to work longer and well into their 70s because they haven’t been able to save adequately for retirement or started saving for it later in life,” Kong added. Along with this, people may not be able to retire at 65 because of their investments, the risks they’ve taken, or other financial decisions they’ve made in their lives.
Jay Zigmont, PhD, MBA, CFP®, and Founder at Childfree Wealth, suggested that the age you retire at is less important than your financial situation.
“While 65 is a magic number for many, when it comes to retirement it is less about your age and more about your overall financial situation,” said Zigmont. “Yes, when you hit 65 you get Medicare, but the full retirement age for Social Security is now 67 for most people. Rather than focusing on a magic age for retirement, focus on achieving financial independence (FI).”
Reasons Why You Might Not Be Able to Retire at 65
While retiring at 65 may very well be possible, there are many factors — both indirect and direct ones — that could prevent you from doing so. Here are some of the big ones.
While you can start collecting Social Security benefits at 62, you’ll need to wait until you’re around 66 or 67 to receive your full retirement benefits, depending on when you were born.
Many people end up waiting until their 70 years old to collect so that they can get the maximum possible amount.
“About 97% of people in America will receive Social Security benefits,” said Crissi Cole, Founder and CEO at Penny Finance.
“Throughout your career, whether you worked for a big company, a startup, or even yourself, there’s a good chance you paid into Social Security.”
Cole added that most people don’t have enough savings to get them by throughout their retirement years, and that they need their Social Security benefits to fill in any financial gaps.
Knowing how much money you’re going to need in retirement can also help you determine when to start collecting Social Security. You may be in a position where you can collect partial benefits early, or you might need to wait until the full retirement age.
Having enough money in savings and investments is key to being able to comfortably afford to retire — at whatever age you choose. But calculating exactly how much money you need is tricky, especially since there are so many unexpected or overlooked variables in play.
“Some feel they have not saved enough to support themselves during retirement and need more time to build these savings,” said Maura Schauss, CFP, SVP, and Financial Advisor at Wealth Enhancement Group.
“Those who have saved may have had emergencies come up where they have had to divert some of this savings towards other expenses, especially during COVID.”
Start tracking your expenses early so that you’re better prepared for the cost of retiring when the time comes.
“Determine which ones will continue and which will go away in retirement,” suggested Schauss.
“Also, consider what new expenses will show up in retirement. Expenses include Medicare premiums and potentially higher dental and vision expenses as one ages. Home maintenance and car expenses never go away, no matter how much we sometimes wish they would.”
Inflation affects the costs of consumer goods and services. It can also keep people from being able to afford to retire.
“High inflation over the last couple of years impacted many pre-retirees or retirees, especially those with tight budgets,” said Kong.
“Many who are near retirement have been faced with the reality that their retirement income can’t keep up with inflation. As a result, they have to work longer to accumulate more money to supplement their income and no longer see retirement at age 65 as realistic.”
High-Interest Debts or Other Expenses
If you’re still dealing with expensive consumer debt or have to financially support someone else, that can also delay your retirement.
“Some people have financial responsibility for taking care of their parents, or helping their kids pay for their college tuition, wedding and other major expenses,” said Kong.
Cole added, “Many soon-to-be-retirees are working hard to put their kids through college. The average cost for one year of college is $34,000 (Education Data Initiative).”
Consumer debt has also increased substantially. “When you are servicing your debt, trying to pay your bills and raise children, you end up having little to set aside for retirement,” Cole said.
Getting out of debt as soon as possible can help you retire earlier. It can also help you reach financial independence, added Zigmont.
Stock Market Volatility
“Volatility in the stock and bond markets are another reason people may not think it’s possible to retire at 65 or earlier,” said Kong. “Some people recovered from last year’s losses; some sold their shares during the market dips, which can’t be recovered.”
Having a diversified portfolio can help you achieve financial stability well into your later years. But it’s easy to make mistakes or take risks that don’t pay out.
One way to improve your odds of retiring at 65 is to start saving and maximize your retirement plan contributions.
“If you work for a company that offers 401(k), maximize your 401(k) salary deferral,” suggested Kong.
“For 2023, the limit is $22,500. The limit is $30,000 if you are 50 or older. If you can’t maximize your 401(k), then contribute as much as you can afford, and take full advantage of your employer matches.”
And if you own your own business, you can always set up your own retirement plan — like an IRA or defined benefit plan. Then, maximize your contributions to this plan.
“If you are at retirement or near retirement, allocate a portion of your retirement savings into investments that provide [a] safety net or stable retirement income, regardless of the stock or bond market,” added Kong.
“Don’t cash out your 401(k) or other retirement accounts when you change jobs. Instead, rollover the money into your IRA or Roth IRA. These baby steps of saving for retirement will add up.”
No Retirement Plan
Without a retirement plan, it’s much harder to determine whether you’ll be ready to retire at 65 or not.
“The first step in creating a retirement plan is to take account of where you stand financially,” said Melissa Shaw, CFP, Wealth Management Advisor, TIAA Wealth Management.
“Most employers have retirement calculators or financial planning tools that you can use to assess your overall financial situation. As a financial advisor, this is my starting place with clients. You can’t treat a problem without a diagnosis.”
Setting Their Retirement Age Based on a Target Date Fund
“More recently, I’ve seen some clients tie their retirement date to the target date fund in their qualified employer sponsored retirement plans,” said Shaw.
“A common default investment in employer sponsored plans are target date funds. Typically, an employee is matched with a target date fund that most closely matches the target retirement age of 65 with their year of birth.
“For example,” added Shaw, “if you are turning age 65 in the year 2024, you will likely be defaulted into a 2025 target date fund. A few clients have planned to retire based on the date of their target date fund, which isn’t necessarily age 65.”
Even with Medicare, healthcare and long-term care are expensive, and many soon-to-be retirees aren’t financially prepared. The same can be said of other ongoing expenses.
Setting up an HSA, or Health Savings Account, can make retiring more feasible.
“If you have a high deductible health plan, then you have access to an HSA,” said Shaw. “Many employers will contribute to your HSA, even if you are not contributing to it, so make sure you’re signed up, even if you can’t contribute. HSA’s can help pay for retirees future medical expenses.”
Bottom Line: Preparing for Retirement
Ultimately, it’s feasible to retire at 65, but you’ll need to be prepared for both the expected and unexpected.
“We must always remember that there are things we can control in life and things we cannot. This is true for retirement planning as well,” said Jim Penna, Senior Manager of Retirement Services and Investment Strategy at VectorVest Inc.
“So, here are some things you can do,” added Penna. “First, the feasibility of retiring at age 65 will be greatly enhanced if you begin preparing early. This means saving early through IRA accounts, Roth IRAs, or 401(k) plans…For those who are approaching retirement, it is not too late to prepare for retirement. You can still contribute to the retirement accounts I mentioned to grow a portfolio…You should also consider a safe, steady income from quality dividend paying stocks or ETFs.”
More From GOBankingRates