A new study shows more Americans mulling early exit from workforce. Here’s what to look at before you leap

The COVID-19 pandemic brought about a surge in early retirements that came to be called the Great Resignation. New research from the Federal Reserve Bank of New York suggests that, as with many aspects of post-pandemic culture, there may be a lingering aftereffect on the U.S. labor market.

Fed researchers found “a persistent change in retirement expectations.” The share of workers saying they were likely to stay in full-time jobs past age 62 dropped from 54.6 percent on average in the six years before the pandemic to 45.8 percent in March 2024.

That’s the lowest percentage since 2014, when the New York Fed launched its Survey of Consumer Expectations, from which the data is drawn. The study found a similar, though less pronounced, decline in Americans expected to work past 67, which will soon become the full retirement age (FRA) for Social Security.

“It is unclear what factors or combination of factors are driving this persistent decline,” the researchers wrote. They posited some possibilities — for example, a preference among older adults for part-time work, uncertainty about life expectancy in the wake of the pandemic or greater optimism that rising wages will help them meet retirement saving goals.

Other recent surveys have shown some workers, notably Generation Xers coming up on retirement age, expect they’ll have to work longer to make ends meet. Alicia Munnell, director of the Center for Retirement Research at Boston College, says she was “very surprised” by the New York Fed findings.

“Usually, people say, ‘I’m going to work forever,’ ” she says. “I don’t know how much weight to put on the full-time or part-time story, and I’m not sure it’s really a confidence thing. I wish I could say something brilliant about this change in sentiment.”

If you’re among those mulling early retirement, remember that forgoing the full-time grind means forgoing a full-time income, too. Here are five things to think about, and plan for, to help you make it work.

1. You can’t sign up for Medicare yet

Tens of millions of retirees rely on Medicare to cover most of their health costs. But most people don’t become eligible for Medicare until they turn 65. If you leave your job, and your group health insurance, before then, you’ll need to find some other way to get coverage, and it will likely cost more than your subsidized plan at work.

“Covered employees are used to paying premiums through their paychecks and getting more attractive rates,” says Rob Williams, managing director of financial planning, retirement income and wealth management at the Schwab Center for Financial Research. “That may not be the case in the private market. But if you retire, you need some other bridge to Medicare for health care coverage.”

What you can do: You have options for building that bridge, but you’ll want to determine the cost and factor it into your early retirement budget, Williams says.

You may be able to maintain your workplace health plan under COBRA, a program that provides temporary coverage, but unlike in your working days, you likely will have to pay the full monthly premium. Getting coverage through the Affordable Care Act (ACA) marketplace is another option. ACA insurers are required to cover preexisting conditions and provide several types of preventive care, including many vaccines, with no out-of-pocket cost.

People with limited incomes can get reduced premiums on ACA plans. People with very low incomes may qualify for Medicaid; in most states, the threshold is 138 percent of the federal poverty level, or $15,060 for an individual and $20,440 for a couple in 2024.

If you don’t qualify for Medicaid and can’t afford a private health plan, you may be able to get needed medical care at a community health center. There are more than 1,300 nationwide, charging fees on a sliding scale based on your income. The federal Health Resources & Services Administration has an online tool you can use to find one near you.

2. You can claim Social Security, but you’ll get less

Many people retire at 62 because that’s the earliest you can collect Social Security retirement benefits. But just because you can claim monthly benefits at 62 doesn’t always mean you should.

Social Security pays 100 percent of the benefit calculated from your lifetime earnings history if you claim it at full retirement age. Start earlier and your benefit is reduced by as much as 30 percent, permanently. On the other hand, if you wait past FRA, you get a benefit boost — 8 percent for each year you delay, up to age 70.

“If you are not in good health and need the money, then filing earlier is a necessity,” Williams says. Otherwise, “I suggest everyone consider waiting if they can.”

What you can do: Like switching from full-time to part-time work, taking Social Security as part of your early retirement is effectively accepting reduced pay. Before you decide, assess your overall income picture. Will other sources of money, such as your savings or a pension, help you cover that gap over a lengthy retirement? Would your claiming decision affect benefit options for your spouse?

“Run through the scenarios,” Williams advises. “That Social Security decision is a very important one.”

3. Retirement is expensive

Food prices have gone up 25 percent since the start of the pandemic, and housing costs by 20 percent. Interest rates on credit cards, loans and mortgages have climbed, and home insurance and auto insurance premiums are soaring. Those things don’t suddenly cost less when you retire.

Inflation recently hit a 40-year high, but Americans under 50 have spent most of their lives in a period of relative price stability and may not be bracing for another spike, or accounting for the toll slow but steady increases could take on their future finances.

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Use AARP’s Retirement Calculator to find out when — and how — to retire the way you want.

“The surveys that are showing people’s expectations of an early retirement going up might be more a result of society’s lack of experience with inflation,” says Chris Manske, president of Manske Wealth Management in Houston. “Just because you can transition to a fixed income at today’s prices doesn’t mean you’ll be comfortable after 10 or 20 years of prices going up.”

What you can do: Factor in the potential impact of inflation in calculating your retirement budget. The Federal Reserve’s target annual inflation rate is 2 percent. Try to increase your savings rate by 2 percent or 3 percent, so your nest egg can keep up. “You need to know before you retire what your lifestyle will look like with inflation,” Manske says.

4. You might miss work more than you think

Working isn’t only about bringing home a paycheck. It can also enrich your life with social connections and a sense of purpose. Transitioning into a life of ease may be difficult, particularly if you do so relatively young.

“Many people don’t know what to do with their time,” Williams says. “Many people retire and hate it.”

What you can do: Retirement planning isn’t just about saving money. It’s also planning what your life will be like. Do you intend to work part-time or freelance? Travel the world? Pick up that hobby you’ve long thought about? Prepare to fulfill your aspirations, whatever they are.

Say you want to do consulting work after leaving full-time employment. Develop the skills and the network you’ll need before you take the plunge. If travel is your goal, determine how much that will cost and whether you can afford it.

“It doesn’t happen on its own,” Williams says. “You have to be open to planning for that.”

5. You might live longer than you think

Some people retire early for fear that if they put it off, they won’t have enough time to do what they want. That may be true for some, but on average, an American who reaches age 62 is projected to live an additional 20-plus years (21 years for a man and 24 for a woman), according to census data.

“A lot of the population is living much longer than in the past,” Munnell says, which means “many will be supporting themselves for a long time in retirement.”

What can you do: To guard against the prospect of outliving your money, plan for 20-plus years of retirement. Check that your savings are sufficient to supplement your fixed income. Be sure to factor in health care expenses: The average 65-year-old will need $157,500 in after-tax savings to cover out-of-pocket costs over the course of retirement.

If the numbers don’t add up, you may want to consider putting off retirement. Working even one more year can have a big impact.

“In my view, working longer is the most important thing you can do to have a secure retirement,” Munnell says. “It gives you higher monthly Social Security benefits, allows you to wait to go on Medicare for health insurance, allows your 401(k) to build if you have that, allows you time to pay off your mortgage on your house and reduces the number of years you have to support yourself with your accumulated retirement assets.”