The Complex Decisions Surrounding Early Retirement

Somewhere in America, a couple in their sixties contemplates early retirement as they review Social Security statements at their kitchen table. After decades of work, they consider the allure of travel, family time, and leisure activities like golf. This decision is not easy as it involves unseen factors beyond financial calculations.

One significant consideration is the potential health impact of early retirement. For men retiring at 62 — the minimum age for Social Security — mortality risk increases by 20% compared to those who continue working. Although the data for women is less definitive, trends suggest similar outcomes. Working longer provides other benefits not reflected in financial statements. These include companionship at work, problem-solving satisfaction, and a sense of purpose. People still active in their 60s often report enhanced social ties and a stronger sense of purpose, which may contribute to longevity.

The perception that aging reduces productivity is inaccurate. Data from the Health and Retirement Study show that workers nearing retirement have earnings aligning with the average economy-wide. Concerns that older workers might hinder younger ones are unfounded. International evidence reveals that economies where older individuals work longer see younger workers thrive as well. Older employees support the economy by earning, spending, and generating demand that benefits younger workers. They also pass invaluable knowledge to peers through mentorship and promote the exchange of fresh ideas.

There is no universal advice to keep working longer, nor should there be governmental pressure to do so. A crucial question arises: When is it more rewarding to embrace retirement and savor life instead of extending working years for hypothetical longevity gains? If a job feels burdensome, the entire argument changes, as the benefits stem from having engaging work.

Another missing perspective in Social Security statements is their broader economic impact. With 145 million full-time workers in the U.S. producing $32 trillion worth of goods and services annually, each worker contributes roughly $220,000 in output. If the 3.8 million Americans retiring yearly worked an extra year, it could boost the economy by approximately $836 billion in output annually. When considering Social Security, Medicare, and welfare gains, this increase could approach $1 trillion.

Not every individual should or can extend their working life. Around 19% of those aged 55-64 face health limitations, and many in physically demanding jobs may lack the option to continue even if desired. The decision to continue working must be personal and informed. No one should feel obliged to keep working after four decades on the job. Today’s potential retirees are, on average, healthier and more capable than past generations. As they retire, the workforce and society lose valuable contributors.

Dana Goldman is the founding director of the USC Schaeffer Institute for Public Policy & Government Service. Anup Malani is the chief economist of the Centers for Medicare & Medicaid Services. Funding for the Schaeffer Center comes from various sources, including a contract with the Centers for Medicare and Medicaid Services to perform economic and policy analysis.