Recent analysis shows that claiming Social Security at age 62 can reduce your lifetime benefits by up to $180,000 Americans risk losing $180K in Social Security by retiring too early | Fingerlakes1.com, yet it remains one of the most common retirement ages in America.
You’ve worked hard for decades and dream of finally retiring at 62—the earliest age you can claim Social Security. But what if that decision costs you more than a luxury car’s worth of income over your retirement? While people expect to retire at 66, most actually retire at 62 The Average Age of Retirement in the United States 2025 – What You Need to Know – North American Community Hub, often without understanding the full financial impact.
This guide reveals the hidden costs of retiring at 62 in 2025, backed by data from the Social Security Administration, Medicare, and financial planning experts. You’ll discover exactly how much money you’ll lose, what alternatives exist, and when early retirement actually makes sense.
The Hidden Costs of Retiring at 62: What Nobody Tells You
You’ve been dreaming about retiring at 62 for years. Freedom. No more alarm clocks. Time with grandkids. But here’s the problem: retiring at 62 could cost you over $300,000 in your lifetime.
Most people don’t know this until it’s too late. They sign up for Social Security at 62, thinking they’re making a smart move. Then reality hits. The reduced checks. The medical bills. The stress of watching their savings drain faster than expected.
This article shows you exactly what happens when you retire at 62. You’ll see the real numbers. The hidden fees. The lifetime losses. And you’ll learn when retiring early actually makes sense.
The 30% Social Security Cut You’ll Accept Forever
When you claim Social Security at 62, you lose 30% of your money. Forever.
This isn’t a temporary reduction. It’s permanent. If you were supposed to get $2,000 per month at age 67, you’ll only get $1,400 at age 62. That’s $600 less every single month for the rest of your life.
Here’s where it gets worse. Full retirement age is now 67 for anyone born in 1960 or later. If you were born in 1959, it’s 66 years and 10 months. The government keeps pushing this age higher, which means claiming early costs you even more than it used to.
Let’s do the math. That $600 monthly loss equals $7,200 per year. If you live to 87 (which is likely if you reach 65), that’s 25 years of reduced payments. Multiply $7,200 by 25 years. You just lost $180,000.
The maximum Social Security benefit tells the same story. In 2025, someone claiming at 62 gets $2,831 per month. Wait until 67, and you get $4,018. Make it to 70, and you receive $5,108. The difference between 62 and 70 is $2,277 per month or $27,324 per year.
Maria’s Reality Check: Maria thought she could live on $1,400 per month. After rent, utilities, and groceries, she had $200 left. One car repair wiped that out. She ended up getting a part-time job at 64 just to make ends meet. “I wish someone had shown me these numbers before I filed,” she says.
Paying $40,000+ for Health Insurance Before Medicare Kicks In
Medicare doesn’t start until you turn 65. That creates a three-year gap you need to fill.
At age 62, health insurance costs about $1,396 per month. By 64, it’s $1,458 per month. Why so high? Federal rules let insurance companies charge people in their 60s up to three times what they charge 21-year-olds.
Add it up. Three years of coverage from age 62 to 64 costs $51,458 total. That’s money coming straight out of your retirement savings or your reduced Social Security check.
Compare that to Medicare. Once you hit 65, your costs drop to between $185 and $409 per month. That’s a massive difference. You’re paying $1,400 per month before 65 and $200-400 after 65.
COBRA is even worse. If you leave your job at 62, your employer-based coverage ends. COBRA lets you keep that insurance, but you pay the full premium plus a 2% fee. Most COBRA plans cost $600-$700 per month for single coverage and over $1,500 for family coverage. And COBRA only lasts 18 months.
The marketplace is your other option. Depending on your income, you might qualify for subsidies. But if your income is too high, you’re stuck paying full price.
James’ Surprise: James retired at 62 with $400,000 saved. He forgot about health insurance. His first year alone cost him $18,000 in premiums and deductibles. By the time Medicare started, he’d spent $55,000. “That was 13% of my nest egg gone before I even turned 65,” he says.
The Compound Interest You’re Giving Up
Your 60s are your highest-earning years. Walk away at 62, and you lose those peak paychecks.
More importantly, you stop contributing to retirement accounts when your balance is biggest. That’s when compound interest works hardest for you.
In 2025, you can put $31,000 into your 401(k) if you’re 50 or older. Five more years of work means five more years of contributions. That’s $155,000 in principal alone.
But here’s where it gets interesting. That money doesn’t just sit there. It grows. Assume a 7% annual return (the historical average for balanced portfolios). Your $155,000 in contributions becomes $300,000 by the time you’re 80.
Let’s look at two people. Sarah starts investing at 24 and contributes consistently until 65. She ends up with $1.5 million. Mike starts at 30, just six years later, and contributes the same amounts. He only reaches $920,000. Six years cost him $580,000.
Now apply that to retiring at 62 versus 67. Those five extra years of contributions and growth can add $250,000 to your final balance.
Your salary matters too. Most people earn their highest wages between 60 and 67. Leaving early means losing those big paychecks plus the retirement contributions that come with them.
Robert’s Math: Robert was making $95,000 at 62. He could have made $105,000 by 65 and $110,000 by 67. Instead, he retired. He gave up $525,000 in salary and $150,000 in 401(k) growth. “I thought five years wouldn’t matter,” he says. “I was wrong.”
Early Withdrawal Penalties That Slash Your Nest Egg
Touch your retirement money before 59½, and the IRS takes 10% immediately.
This early withdrawal penalty hits hard. You need $50,000 from your IRA to cover expenses at age 60. The government takes $5,000 right off the top. Then you owe regular income taxes. At a 24% tax rate, that’s another $12,000 gone. Your $50,000 withdrawal leaves you with just $33,000.
The penalty applies to IRAs and most 401(k) plans. It doesn’t matter why you need the money. Medical emergency? 10% penalty. House repair? 10% penalty. Car broke down? 10% penalty.
There’s one exception called the Rule of 55. If you leave your job at age 55 or older, you can withdraw from that employer’s 401(k) without the penalty. But this only works for the 401(k) at the job you just left. Your IRA still has the penalty until 59½.
Even without the penalty, you still owe regular income taxes. Every dollar you pull from a traditional IRA or 401(k) counts as regular income. That can push you into a higher tax bracket.
Some people try to spread withdrawals across multiple years to avoid higher tax brackets. That works, but only if you can afford to wait.
Linda’s Mistake: Linda retired at 62 and needed money at 63. She withdrew $40,000 from her IRA. The penalty cost her $4,000. Taxes took $9,600 more. She received $26,400. “I basically paid 32% to access my own money,” she says. “I should have waited three more years.”
How a Part-Time Job Can Slash Your Social Security Check
Many people retire at 62 but keep working part-time. This causes a huge problem.
In 2025, you can only earn $23,400 per year without losing benefits. Every $2 you earn above that limit costs you $1 in Social Security payments.
Let’s say you get a part-time job paying $40,000 per year. You’re $16,600 over the limit. Social Security takes back $8,300 of your benefits. That’s nearly half of what you would have received.
The year you reach full retirement age, the rules change slightly. The limit jumps to $62,160, and you only lose $1 for every $3 earned above that amount. Once you actually reach full retirement age, the limit disappears completely.
The government does recalculate your benefits later to account for what you lost. But that adjustment is small and takes time. You’re better off not losing the money in the first place.
This earnings test catches people off guard. They think they can retire early and work part-time to supplement their income. Instead, they end up working for reduced pay because Social Security claws back their benefits.
Tom’s Wake-Up Call: Tom started collecting $1,600 per month at 62. He got bored and took a $35,000 job. Social Security reduced his benefits by $5,800 that year. “I was working full-time hours and making less than if I’d just waited to claim,” he says.
Why Living Longer Makes Waiting Worth It
Life expectancy changes everything in retirement planning.
The average American lives to 79.1 years. But if you make it to 65, you’ll probably live to 84.5. That’s nearly 20 years of retirement you need to fund.
The break-even point for Social Security falls between ages 78 and 81. That’s when the higher benefits from waiting catch up to the earlier benefits from claiming at 62.
Here’s the comparison. Claim at 62 and get $1,400 per month. By age 78, you’ve collected $268,800 total. Now look at someone who waited until 67 to claim $2,000 per month. By 78, they’ve collected $264,000. Nearly the same.
But watch what happens after 78. The person who waited keeps getting $2,000 per month. The person who claimed early is stuck at $1,400. At age 85, the person who waited has collected $168,000 more. By 90, it’s $302,400 more.
Since 1970, the average retirement period has grown from 12.8 years to 18.6 years for men. For women, it went from 16.6 years to 21.3 years. People are living longer in retirement than ever before.
If you have good health, a family history of longevity, and you’re still working at 62, waiting makes financial sense. The longer you live, the more waiting pays off.
Dorothy’s Long Game: Dorothy is 88 now. She claimed at 70 and gets $3,200 per month. Her sister claimed at 62 and gets $1,900. Over 18 years, Dorothy has received $217,000 more. “My sister needed the money early,” Dorothy says. “I didn’t. Best decision I ever made.”
Tax Surprises That Shrink Your Retirement Income
Social Security benefits are taxable. This surprises most people.
If your combined income exceeds certain thresholds, up to 85% of your Social Security becomes taxable. Combined income means your adjusted gross income plus non-taxable interest plus half of your Social Security benefits.
Let’s work through an example. You get $30,000 from Social Security and withdraw $20,000 from your IRA. Your combined income is $50,000 ($20,000 IRA + $15,000, which is half your Social Security). At that level, 85% of your Social Security gets taxed.
That means $25,500 of your Social Security counts as taxable income. Add the $20,000 IRA withdrawal, and you’re reporting $45,500 in taxable income. At a 22% tax rate, you owe about $10,000 in federal taxes.
Nine states also tax Social Security: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. If you live in one of these states, your tax bill goes higher.
Retiring early can push you into higher tax brackets if you need to pull money from retirement accounts before other income sources kick in. Waiting lets you plan better and do strategic Roth conversions during lower-income years.
Patricia’s Tax Shock: Patricia retired at 62 and started drawing Social Security. She also needed $25,000 per year from her IRA. Her combined income made 85% of her Social Security taxable. Her effective tax rate jumped to 28%. “I’m paying $7,000 more in taxes than I expected,” she says.
How Inflation Erodes Early Retirement Benefits
Social Security includes cost-of-living adjustments (COLA) every year. In 2025, the COLA is 2.5%.
But here’s the catch. COLA applies to your base benefit. Start with a smaller benefit, and your increases stay smaller forever.
Someone getting $2,000 per month gets a $50 monthly raise with a 2.5% COLA. That’s $600 more per year. Someone getting $1,400 per month only gets a $35 raise. That’s $420 per year.
The gap keeps growing. After 10 years of 2.5% annual increases, the $2,000 benefit grows to $2,560. The $1,400 benefit only reaches $1,792. The monthly difference is now $768 instead of $600.
After 20 years, the $2,000 benefit becomes $3,277. The $1,400 benefit reaches $2,294. Now you’re losing $983 per month.
Over 25 years, the compounding effect is massive. Your purchasing power decreases faster when you start with a lower benefit.
Fixed income sources without COLA are even worse. If you have a pension that doesn’t adjust for inflation, your real spending power drops by about 2-3% per year.
Edward’s Math: Edward claimed at 62 and started with $1,500 per month. His friend George waited until 67 and started with $2,100. After 15 years of COLA increases, Edward gets $1,920 per month. George gets $2,688. “We worked the same job for the same years,” Edward says. “But he’s getting $768 more per month than me just because he waited.”
The 4 Situations Where Early Retirement Is the Right Choice
Retiring at 62 isn’t always wrong. Sometimes it’s the smart move.
Serious health problems make early retirement necessary. If you have a condition that reduces your life expectancy below 75, waiting doesn’t make sense. Take the benefits now while you can enjoy them.
Forced early retirement happens more than people think. You lose your job at 60, and nobody will hire you. You’ve looked for work for six months with no luck. Your unemployment is running out. Claiming at 62 might be your only option.
Spousal benefit strategies can make early retirement work. If your spouse earned much more than you, your benefit might be small anyway. You claim at 62 while your spouse waits until 70. This gives you some income now while maximizing the survivor benefit later.
Substantial other income sources change the math completely. If you have $2 million in investments, rental income, or a pension that covers your expenses, Social Security timing matters less. You can claim whenever you want.
About 46% of people who retired early cited health problems. Another 43% faced job loss or workplace issues. These aren’t people being lazy. They’re dealing with real problems.
Michael’s Situation: Michael was diagnosed with a serious heart condition at 61. His doctor said he might have 10-12 years left. Michael claimed at 62. “I’d rather have five years of reduced benefits than wait for maximum benefits I might not live to see,” he says.
Alternative Paths That Maximize Your Retirement Income
You don’t have to choose between working full-time and retiring completely.
Work until 65 for Medicare, then claim Social Security. This strategy eliminates the health insurance gap. Once Medicare starts, your healthcare costs drop dramatically. Then you can claim Social Security without worrying about expensive medical bills.
Phased retirement means reducing your hours instead of stopping completely. Go from five days to three days per week. Your income drops, but so does your stress. You’re still contributing to retirement accounts and building credits toward a higher Social Security benefit.
Bridge jobs let you change careers without leaving the workforce entirely. Find consulting work in your field. Get a lower-stress job that pays less but keeps you busy. Work seasonally and take summers off. The goal is income without the intensity of your old career.
Delay Social Security to 70 while living on other income sources. Draw from taxable accounts first, then tax-deferred accounts. Let Social Security grow by 8% per year after full retirement age. At 70, your benefit is 24% higher than at 67.
Each year you delay Social Security past full retirement age increases your benefit by 8%. That’s guaranteed growth you can’t get anywhere else. It also reduces the risk of running out of money if you live into your 90s.
Susan’s Bridge Strategy: Susan left her stressful corporate job at 63. She started consulting part-time, making $30,000 per year. She waited until 67 to claim Social Security. “Those four years of light work kept me active and boosted my benefit by 20%,” she says. “I’m 72 now and getting $2,400 per month instead of $1,680.”
The Bottom Line
Retiring at 62 costs you money. A lot of money.
The Social Security reduction alone can reach $180,000 over your lifetime. Add health insurance costs of $50,000 before Medicare. Factor in lost investment growth of $200,000. Include higher taxes and smaller COLA increases. The total easily exceeds $300,000.
Retirement now lasts 18-22 years on average for most people. That’s a long time to live on reduced benefits. Running out of money at 80 is a real risk if you claim too early.
But the numbers are different for everyone. Your health, your savings, your job situation, and your other income sources all matter. There’s no one-size-fits-all answer.
Before you file for Social Security, run the numbers. Visit SSA.gov and use their calculators. See what your benefit will be at 62, 67, and 70. Look at your health insurance options. Check your retirement account balances. Talk to a financial advisor who can review your specific situation.
Those extra five years of work might feel like forever right now. But they could fund a decade of comfortable retirement. Don’t let excitement about early retirement cost you hundreds of thousands of dollars.
Take Action Today:
- Create a free account at SSA.gov to see your benefit estimates
- Get health insurance quotes for ages 62-64 from Healthcare.gov
- Calculate your break-even age using Social Security calculators
- Review your retirement account balances and contribution rates
- Schedule a meeting with a financial advisor to discuss your timeline
The decision to retire is personal. Just make sure it’s informed.
