Should I Retire at 62, 65, or 67? A Colorado Retirement Planning Guide

Should you retire at 62, 65, or 67? The answer depends on more than your savings. Your Social Security benefit, health insurance, investment portfolio, taxes and expected spending can all change depending on when you leave work.

Retiring at 62 may give you more years to enjoy retirement, but it can also mean a longer period of portfolio withdrawals, reduced Social Security benefits if you claim early, and several years of health insurance costs before Medicare. Working until 65 or 67 may provide more time to save, increase future Social Security income and reduce the number of years your investments need to support you.

For Colorado professionals and couples approaching retirement, the decision should be evaluated as one financial plan. The question is not simply whether you can afford to stop working. It is how your retirement date affects the income, taxes and investment decisions that follow.

This guide compares retiring at 62, 65 and 67, explains the financial differences between those ages, and provides examples of how Colorado households can evaluate the decision.

If you are within five to fifteen years of retirement, see our related guide: 5 Years Before Retirement: What to Do and When.

Gabriel Motta, CFP®, MBA | Founder, Inclinevest Wealth Management

What Is the Difference Between Retiring at 62, 65, and 67?

The three ages represent different financial milestones. Age 62 is the earliest age most people can claim Social Security retirement benefits. Age 65 is generally when Medicare eligibility begins. Age 67 is the full retirement age for Social Security for people born in 1960 or later.

These milestones are separate. You do not have to claim Social Security when you retire, and you do not have to retire when you become eligible for Medicare. Someone can stop working at 62, purchase health insurance until Medicare begins, and delay Social Security until 67 or 70.

Social Security retirement ages and Medicare eligibility are separate rules. Individual eligibility and benefit calculations depend on birth date and other circumstances.

Should I Retire at 62?

Retiring at 62 can be a reasonable decision for someone who has accumulated enough savings, wants to leave the workforce earlier and can manage the financial responsibilities of a potentially longer retirement.

However, age 62 introduces several planning challenges. Your investments may need to support you for decades, Social Security benefits are reduced if you claim early, and you generally have three years to cover before Medicare eligibility.

What happens if you claim Social Security at 62?

For people born in 1960 or later, full retirement age is 67. Claiming at 62 generally reduces the worker's monthly retirement benefit to 70% of the amount payable at full retirement age.

Consider someone whose estimated Social Security benefit at age 67 is $3,000 per month. The approximate monthly amounts would look like this:

Illustrative comparison using a $3,000 monthly full retirement age benefit for someone born in 1960 or later. Actual Social Security benefits depend on the person's earnings record, birth date and claiming month. Amounts are before any applicable tax withholding and do not include future cost-of-living adjustments.

The difference between claiming at 62 and 70 in this example is $1,620 per month, or $19,440 annually, before future cost-of-living adjustments. That is a meaningful difference in the amount of guaranteed lifetime income.

However, waiting means giving up benefits during the years before claiming. The decision should consider life expectancy, health, available portfolio assets, spousal and survivor benefits, and the amount of income needed in the meantime.

You can compare your own benefit estimates using the Social Security Administration's my Social Security account.

How do you pay for health insurance between 62 and 65?

Medicare generally does not begin until age 65. If you retire at 62 and lose employer-sponsored health insurance, you need to account for approximately three years of coverage before Medicare eligibility.

Possible options include:

• Health insurance through a spouse who continues working.
• An individual health insurance plan through Connect for Health Colorado.
• COBRA continuation coverage, generally for a limited period.
• Retiree health benefits from a former employer, if available.
• Part-time employment that includes health insurance benefits.

Marketplace premium tax credits and other assistance can depend on household income and eligibility rules. Investment income, capital gains and retirement account distributions can affect the income reported for health insurance purposes.

This is particularly important for households with substantial taxable investments or large traditional retirement accounts. A withdrawal or Roth conversion that makes sense from a federal tax perspective may also affect health insurance costs.

See our separate guide: Healthcare and Medicare Bridge Strategies for People Retiring Before 65 in Colorado.

Who might benefit from retiring at 62?

• People with sufficient savings to support a longer retirement.
• Households with manageable expenses and a clear healthcare plan.
• People who want to leave demanding or stressful employment earlier.
• Individuals with pensions, rental income or other sources of reliable income.
• People who can delay Social Security while using other assets to fund the initial years of retirement.

Retiring at 62 does not necessarily mean claiming Social Security at 62. A household with sufficient savings may choose to use portfolio withdrawals during the early years of retirement and claim Social Security later.

Should I Retire at 65?

Age 65 is an important retirement milestone because Medicare eligibility generally begins at this age. For people who have been relying on employer-sponsored health insurance, Medicare can make the transition away from employment easier to coordinate.

But turning 65 does not automatically mean you should retire or start Social Security. You may still benefit from working longer, delaying Social Security or continuing to save.

What changes financially at age 65?

• Medicare eligibility: Most people become eligible for Medicare around age 65 and have an initial enrollment period that generally spans seven months.
• Social Security: You can claim retirement benefits, but doing so before full retirement age generally results in a permanently reduced monthly benefit.
• Portfolio withdrawals: You may have fewer years of healthcare costs before Medicare, but your retirement savings still need to support future spending.
• Tax planning: Your employment income may decline, potentially creating opportunities to coordinate withdrawals and Roth conversions.
• Required distributions: Your required minimum distribution age depends on your birth year and account type. For people born in 1960 or later, the general starting age is 75.

Does Medicare automatically start when you turn 65?

Not always. Some people are automatically enrolled, while others must actively sign up. The initial enrollment period generally begins three months before the month you turn 65 and ends three months after that month.

If you continue working and have qualifying employer group health coverage, you may be able to delay Medicare Part B without a late enrollment penalty. The rules depend on the employer coverage and your circumstances. COBRA and retiree coverage do not generally provide the same protection as active employment coverage.

Do not assume you can simply remain on an existing insurance plan without reviewing Medicare enrollment requirements. Missing an enrollment period can create coverage gaps or penalties.

Review the official Medicare enrollment rules before leaving employment or changing coverage.

Should you claim Social Security at 65?

For someone born in 1960 or later, claiming at 65 generally provides approximately 86.7% of the full retirement age benefit, compared with 100% at age 67.

In the earlier example of a $3,000 monthly benefit at age 67, the estimated age-65 benefit would be approximately $2,600 per month.

Some retirees claim at 65 because they want the additional income. Others continue using savings or investment withdrawals and delay Social Security to increase their future monthly benefit.

The right approach depends on how much income your portfolio can provide, your health and longevity expectations, and whether you are coordinating benefits with a spouse.

Should I Retire at 67?

Retiring at 67 may provide more financial flexibility than retiring earlier. You have additional years to earn income, contribute to retirement accounts, reduce debt and allow investments to grow. For people born in 1960 or later, age 67 is also full retirement age for Social Security.

Claiming Social Security at full retirement age generally provides 100% of your calculated retirement benefit. You can still delay benefits beyond 67, up to age 70, to receive delayed retirement credits.

Advantages of retiring at 67

• More years of potential employment income and retirement contributions.
• Fewer years in which the portfolio needs to fund retirement spending.
• Medicare eligibility has generally already begun.
• Full retirement age Social Security benefits are available.
• More time to reduce debt and prepare a retirement income strategy.

Does working until 67 always make financial sense?

Not necessarily. Working longer can improve the financial picture, but it also means giving up years of retirement. Health, family responsibilities, job satisfaction and personal priorities should be part of the decision.

Someone with $4 million in investments, manageable spending and no mortgage may not need to continue working until 67. Someone with $1.5 million and a high annual spending requirement may need additional years of income or a different retirement strategy.

The important question is how much additional financial security another year or two of employment creates, and whether that improvement justifies postponing retirement.

What If You Retire at 62 but Delay Social Security Until 67 or 70?

Retiring and claiming Social Security are two separate decisions. One strategy is to leave employment at 62, use savings or investment withdrawals to fund the early years of retirement, and delay Social Security until a later age.

This can provide a larger Social Security benefit later in life, but it also places more responsibility on the investment portfolio during the years before benefits begin.

Delaying Social Security is not automatically the best choice. It should be evaluated alongside the portfolio's ability to provide income, the household's health and longevity expectations, and the impact on survivor benefits.

For a more detailed analysis, see Social Security Optimization: Why Your Claiming Decision Is One of the Most Important Choices You'll Make in Retirement.

How Much Money Should You Have Saved Before Retiring at 62, 65, or 67?

There is no single savings target that applies to everyone. A person with $2 million and modest spending may be in a stronger position than someone with $3 million and substantially higher expenses.

One useful starting point is to estimate how much income your portfolio needs to provide after accounting for Social Security, pensions and other income.

The following table illustrates the initial annual withdrawals from different portfolio balances using a 3.5% starting withdrawal assumption.

Illustrative first-year portfolio withdrawals before taxes. The 3.5% figure is a comparison assumption, not a guaranteed or universally appropriate withdrawal rate. The sustainable amount depends on retirement length, asset allocation, market performance, inflation, taxes and spending flexibility.

These figures do not include Social Security, pension income or other sources of cash flow. They also do not account for the tax treatment of withdrawals from traditional retirement accounts.

Example: A couple retiring at 62 with $2 million

Assume a Colorado couple retires at 62 with $2 million invested and expects to spend $120,000 annually before taxes.

If the couple does not claim Social Security until 67, the portfolio or another source of income must cover the remaining spending requirement during the initial years. Once Social Security begins, the amount required from investments may decline.

The couple must also account for healthcare before Medicare, income taxes and the possibility of poor investment returns early in retirement. A $2 million portfolio alone does not establish whether the plan is sustainable.

Example: A couple retiring at 65 with $3 million

Consider a couple with $3 million invested who plans to retire at 65. They have Medicare eligibility approaching, and each spouse expects to claim Social Security at a different age.

A 3.5% initial portfolio withdrawal would produce $105,000 annually before taxes. If the couple later receives $50,000 in combined annual Social Security benefits, their total gross income could be approximately $155,000, assuming those benefits are already in payment and the portfolio withdrawal remains unchanged.

The planning challenge is coordinating the transition between employment income, investment withdrawals and Social Security. The couple should also consider whether delaying one or both benefits would provide a more suitable income strategy.

Example: A couple retiring at 67 with $4 million

A couple retiring at 67 with $4 million invested may have more flexibility. A 3.5% initial withdrawal would produce $140,000 annually before taxes.

If both spouses have Social Security benefits in payment, the portfolio may need to provide less income than it would have several years earlier. The couple may also have fewer years of healthcare expenses before Medicare and more time to prepare for the transition away from employment.

However, a larger portfolio does not eliminate tax planning, market risk or longevity risk. Large traditional retirement account balances can produce substantial required distributions later in life, and the surviving spouse may face a different tax situation after one spouse dies.

Is It Better to Work Another Two or Five Years Before Retiring?

Working an additional two or five years can improve retirement readiness in several ways. You may continue contributing to retirement accounts, receive employer matching contributions, reduce debt and avoid withdrawing from investments.

You may also delay Social Security, which can increase your future monthly benefit if you wait beyond full retirement age.

The financial effect of working longer can be larger than simply adding another few years of savings. It can change both sides of the retirement calculation: the amount of money available and the number of years that money needs to support you.

What changes when you work two more years?

• You continue receiving employment income rather than relying entirely on investments.
• You may continue making retirement contributions.
• You may delay portfolio withdrawals during the additional working years.
• You may have more time to reduce debt or build cash reserves.
• You may be able to coordinate the timing of Social Security and healthcare more effectively.

What changes when you work five more years?

The impact can be more substantial when the additional years move you from retiring at 62 to 67. You may avoid five years of portfolio withdrawals, receive five more years of employment income and potentially claim a higher Social Security benefit.

However, the additional financial benefit depends on salary, savings rate, investment returns, taxes and spending. Continuing to work also means postponing retirement, so the decision should reflect personal priorities as well as financial projections.

How Do Colorado Taxes Affect Your Retirement Date?

Colorado retirement planning should account for both federal and state income taxes. The amount you can spend from your portfolio depends partly on how much of each withdrawal is taxable and which income sources are available in a particular year.

The years immediately before and after retirement can create opportunities to coordinate taxable income. For example, someone who retires at 62 may have several years between their last paycheck and the start of Social Security or required minimum distributions.

Should you consider Roth conversions before claiming Social Security?

A Roth conversion moves money from a traditional IRA or other eligible pre-tax retirement account into a Roth IRA. The converted amount is generally included in taxable income for the year of conversion.

Some retirees evaluate Roth conversions during the years between employment and the beginning of Social Security or required minimum distributions. These years may offer more control over taxable income than the final years of a high-earning career.

However, a conversion can increase federal and Colorado taxable income. It can also affect Medicare income-related monthly adjustment amounts in a later year and may affect health insurance premium assistance before age 65.

A conversion should be evaluated based on the current tax cost, expected future tax rates, available cash to pay the tax and the long-term effect on the household's retirement accounts.

How do required minimum distributions affect retirement planning?

Required minimum distributions, or RMDs, are withdrawals that generally must be taken from certain tax-deferred retirement accounts beginning at a specified age.

Under current federal rules, the general starting age is 73 for people born from 1951 through 1959 and 75 for people born in 1960 or later. Different rules may apply to certain workplace retirement plans and individual circumstances.

These distributions can increase taxable income even when a retiree does not need the money for spending. Planning before RMDs begin may provide opportunities to evaluate Roth conversions, charitable giving and withdrawal strategies.

For a detailed discussion of Colorado-specific tax treatment, see Colorado Retirement Taxes: What Retirees Need to Know.

What Happens to Your Investments When You Retire?

Retirement changes the role of your investment portfolio. During your working years, your primary focus may have been accumulating assets. Once you stop working, your portfolio may need to provide regular income while continuing to support long-term growth.

This creates a different set of investment decisions. You need to determine how much to withdraw, which accounts to use, which investments to sell and how much risk to maintain.

Sequence-of-returns risk becomes more important

Sequence-of-returns risk refers to the effect of investment returns occurring in a particular order, especially when withdrawals are being made from a portfolio.

A market decline shortly after retirement can be more damaging than a similar decline during the accumulation years because you may need to sell investments while prices are lower to fund spending.

For example, a retiree who withdraws $100,000 annually from a $2 million portfolio is taking 5% of the initial balance before considering investment performance. If the portfolio declines early in retirement, the same dollar withdrawal represents a larger percentage of the remaining assets.

This does not mean retirees should avoid stocks or hold all their assets in cash. It means the investment allocation and withdrawal strategy should be evaluated together.

How should retirement withdrawals be coordinated?

Retirees may hold assets in several types of accounts:

• Traditional 401(k)s and IRAs.
• Roth IRAs and Roth workplace retirement accounts.
• Taxable brokerage accounts.
• Bank savings and money market accounts.
• Company stock, restricted stock units or stock options.

These accounts do not have identical tax consequences. Selling investments in a taxable account may generate capital gains, while traditional retirement account distributions generally create ordinary income. Qualified Roth distributions may be tax-free.

A withdrawal strategy should consider the tax treatment of each account, future required distributions, Social Security income and the household's expected spending.

What If You Have Employer Stock, Stock Options or Deferred Compensation?

Retirement decisions can become more complicated for executives and employees who receive equity compensation or deferred compensation from their employer.

A retirement date may affect when restricted stock units vest, whether stock options remain exercisable, how deferred compensation is paid and when income is recognized for tax purposes.

These decisions are particularly important for employees in aerospace, defense and technology companies, where compensation may include a combination of salary, bonuses, restricted stock, stock options and other incentive arrangements.

Before choosing a retirement date, review:

• Upcoming equity vesting dates and any retirement-related vesting provisions.
• Stock option expiration dates and exercise requirements.
• Deferred compensation distribution elections and deadlines.
• Concentrated employer stock exposure.
• Tax consequences of selling or exercising company equity.
• How much liquid cash will be available after leaving employment.

A retirement date that looks reasonable based on a total investment balance may need to change after accounting for restricted assets, deferred compensation elections and the timing of taxable income.

How Do You Know If You Are Financially Ready to Retire?

Being financially ready to retire means more than reaching a particular portfolio balance. You should be able to explain how your household will pay for its expenses, where income will come from, how taxes will be managed and what happens if markets perform poorly.

Before leaving employment, work through the following questions:

1. Do you know your annual retirement spending?

   Separate essential expenses from discretionary expenses. Include housing, insurance, healthcare, travel, taxes, maintenance and major purchases.

2. Have you estimated Social Security and pension income?

   Use your actual benefit estimates rather than relying on general averages. Compare different claiming ages and consider how a spouse's benefits may change the decision.

3. Do you have a healthcare plan?

   Identify how you will obtain coverage before Medicare and how your costs may change when Medicare begins.

4. Have you evaluated taxes across your accounts?

   Understand how withdrawals from traditional retirement accounts, Roth accounts and taxable investments will affect your federal and Colorado income taxes.

5. Can your portfolio support the required withdrawals?

   Evaluate different market conditions, inflation assumptions, retirement lengths and spending adjustments.

6. Have you considered what happens to a surviving spouse?

   Review the effect of one Social Security benefit ending, changes in filing status and the household's future spending requirements.

7. Have you reviewed your workplace benefits and equity compensation?

   Confirm vesting schedules, deferred compensation elections, pension options, insurance coverage and deadlines before leaving your employer.

When Should You Start Planning for Retirement?

Many of the most important retirement decisions should be evaluated five to fifteen years before leaving work. This provides time to review savings, adjust investment risk, coordinate taxes and determine whether a proposed retirement date is realistic.

The closer you get to retirement, the more important it becomes to coordinate the timing of decisions. A Social Security claiming strategy can affect portfolio withdrawals. A Roth conversion can affect taxes and future Medicare premiums. An equity compensation decision can affect the amount of cash available when employment ends.

These decisions are connected, and they should be evaluated together rather than in isolation.

Our guide to what to do five years before retirement explains how to organize these decisions in the years leading up to retirement.

How Inclinevest Wealth Management Helps People Approaching Retirement

Inclinevest Wealth Management is a Colorado-based, fee-only fiduciary registered investment adviser serving clients in Colorado and nationwide. We work with professionals, executives, business owners and retirees who need coordinated investment management and financial planning as they approach and move through retirement.

Choosing when to retire is one of the decisions that can affect nearly every part of your financial life. Our work brings together investment management, retirement income, tax planning considerations and ongoing financial planning.

Depending on your circumstances, planning may include:

• Comparing retirement at 62, 65, 67 or another age.
• Evaluating whether your investment portfolio can support your expected spending.
• Coordinating Social Security claiming decisions with portfolio withdrawals.
• Planning for healthcare coverage before Medicare eligibility.
• Evaluating Roth conversion opportunities and future required distributions.
• Managing taxable, tax-deferred and Roth investment accounts.
• Reviewing employer stock, equity compensation and deferred compensation.
• Evaluating portfolio risk and the effect of market declines during retirement.
• Coordinating with your CPA and estate planning attorney when appropriate.

Our advisory relationships combine ongoing financial planning with investment management. We do not provide standalone hourly advice or one-time retirement plans. Clients work with us through an ongoing advisory relationship in which the financial plan and investment strategy are revisited as circumstances change.

Frequently Asked Questions About When to Retire

Sources and Additional Information

The following government resources provide additional information about Social Security, Medicare, healthcare coverage and retirement account rules.

1. Social Security Administration: Retirement Benefits for People Born in 1960 or Later
2. Social Security Administration: Delayed Retirement Benefits
3. Social Security Administration: my Social Security Account
4. Medicare: Enrollment Periods and Eligibility
5. Medicare: Working Past Age 65
6. HealthCare.gov: Health Coverage for Retirees
7. Connect for Health Colorado: Health Insurance Marketplace
8. Internal Revenue Service: IRA Distributions and Required Minimum Distributions
9. Colorado Department of Revenue: Individual Income Tax Guide