Retiring early

Early retirement isn’t just about finishing a career sooner — it's an opportunity to approach retirement in a smarter and more thoughtful way. For employees considering this path, questions quickly arise: What age is too soon? How does Social Security factor in? What will health care look like before Medicare kicks in?

These aren’t just personal finance questions. They’re workplace planning questions, too — and HR teams are in a unique position to help answer them.

As more employees look to leave the workforce before 65, HR teams have an opportunity to lead. Early retirement calls for clear communication and practical planning. With thoughtful support, companies can help employees retire early while staying aligned with long-term workforce goals.

What is considered an early retirement age?

Early retirement refers to leaving the workforce before reaching age 65, which is when Medicare begins and many workplace benefits end. Retiring before this point often means rethinking health care, income and savings strategies.

But what is early retirement age, exactly? Definitions vary. Some view retiring at 64 as early. Others point to 62, when Social Security benefits first become available. Many financial plans focus on 59½, the age when retirement account withdrawals typically avoid penalties. The earliest retirement age often depends on how much someone has saved and whether they can cover health-care costs on their own. That’s where planning, guidance and employer support make a meaningful difference.

Employer-sponsored retirement plans often shape what’s realistic. Contribution levels, vesting schedules and access to planning tools all influence retirement readiness. When employers invest in benefits that support long-term savings and offer clear retirement timelines, employees are better equipped to evaluate when they can afford to leave work.

Early retirement challenges

Leaving work early sounds appealing, but it comes with real tradeoffs. Retiring early requires a new approach to saving — one that prioritizes flexibility and longevity. That combination increases financial pressure.

Retiring even a few years early may mean missing out on peak earning years, employer matches and compounded growth. It may also mean spending decades in retirement — often 30 years or more — without the safety net of full Social Security or Medicare coverage. However, employers and HR teams can help.

Financial wellness programs, retirement readiness tools and education on savings strategies make a real difference. When employees have access to clear information and practical guidance, they’re better able to plan for early retirement with confidence.

Potential challenges

Early retirement often creates more financial pressure, not less. Here are some key challenges employees face when leaving work before age 65:

• Longevity risk: Savings may need to stretch 30 years or more, increasing the chance of running out of money.
• Limited access to funds: Most retirement accounts apply a 10% penalty on withdrawals before age 59½.
• Health-care gaps: Without Medicare or employer coverage, retirees must find private insurance, which can be expensive.
• Social Security shortfalls: Claiming early reduces lifetime benefits and limits future income flexibility.
• Lack of integration: Without benefits integration for retirement plans, employees may struggle to coordinate savings, income and health care planning.

How Social Security affects early retirement

When employees retire early, Social Security becomes one of the most important financial decisions they face. Claiming benefits at 62 offers immediate income but comes with a permanent reduction. Waiting until full retirement age (FRA) — typically 66 or 67 — provides the full benefit. Delaying past FRA, up to age 70, increases monthly payments even further.

These choices affect lifetime income, tax planning and how long savings need to stretch. HR teams play a role by helping employees understand the long-term impact of each option. With ADP’s integrated retirement planning tools, they can help employees visualize these tradeoffs in real time.

Recalculation of benefits

The earlier someone claims Social Security benefits, the less they receive for life. Claiming Social Security before FRA results in a lower monthly benefit, often reduced by 25% to 30%. That reduction is permanent and continues even as cost-of-living adjustments apply.

Employees nearing retirement need to see the whole picture. What looks like a helpful short-term decision may mean lower income for decades. Employers can support this decision making by offering modeling tools, retirement education and one-on-one planning resources.

Understanding the 35-year earnings rule

The Social Security Administration calculates retirement benefits using the highest 35 years of earnings. These earnings are indexed to account for inflation and then averaged to determine the monthly benefit amount. If there are fewer than 35 years of earnings, the calculation includes zeros for the missing years, which can significantly reduce the benefit. Consistent, long-term earnings play a key role in maximizing Social Security, and early retirees should consider this when evaluating their retirement timeline. Employers can help them by offering tools and education that highlight how career length affects benefit amounts.

Delaying benefits

Delaying Social Security can unlock higher income later on. For every year an employee delays past FRA, their benefit increases by about 8%, up to age 70. That’s a powerful way to build long-term financial security, especially for those concerned about outliving their savings.

Employers have a chance to add real value. With integrated retirement solutions, HR teams show employees how different retirement ages affect their overall picture, making a complex decision manageable.

Impact of working in early retirement

Retiring early doesn’t always mean stopping work completely, but working after claiming Social Security can come with tradeoffs.

For employees who claim benefits before full retirement age, the Social Security Administration imposes an earnings limit. In 2024, if a person earns more than $22,320 from work, their benefits are temporarily reduced by $1 for every $2 earned above that limit. In the year they reach FRA, the threshold increases, and the penalty becomes less steep. Once they reach FRA, the limit disappears altogether.

Many early retirees take on part-time jobs, consulting roles or contract work. These roles can support income and provide structure, but they may also reduce Social Security payments if started too soon.

HR teams can help employees with these choices by communicating how work affects benefits. Personalized planning tools, webinars and direct conversations all help employees weigh the pros and cons of earning income while receiving early benefits. With clear guidance, employees can design retirement paths that balance flexibility and financial stability.

Health insurance options for early retirees

One of the biggest challenges for early retirees is health coverage. Medicare doesn’t begin until age 65, therefore, anyone leaving the workforce early needs a plan to bridge the gap, sometimes for several years. Without coverage, unexpected medical costs can impact long-term savings, which is why early planning is so important.

Early retirees often rely on a mix of options:

• Consolidated Omnibus Budget Reconciliation Act (COBRA): Allows former employees to continue employer-sponsored coverage for up to 18 months, though premiums are often higher.
• Private insurance: Some may buy plans directly through insurers, but these can be costly without group rates.
• Affordable Care Act (ACA) Marketplace plans: Depending on income, early retirees may qualify for tax credits to reduce monthly premiums.

HR teams can help employees explore these options before they leave the organization by offering clear guidance on COBRA timelines, premium estimates and eligibility for ACA subsidies. Educational sessions and benefits continuation checklists give employees the information they need to plan confidently. With the right support, early retirees can protect their health without compromising their financial stability.

Leveraging savings for early retirement

Retiring early depends on careful planning, not just having money set aside. Employees can start collecting Social Security as early as age 62, but their monthly benefits will be permanently reduced. And since Medicare doesn’t kick in until 65, many early retirees face a gap in health coverage. During this time, personal savings often carry the load. Employers can help people bridge that gap.

Financial wellness coaching, digital planning tools, and retirement readiness resources give employees a clearer picture of how to retire early and stay retired. ADP supports these efforts with integrated solutions that make it easier to plan, decide and move forward.

401(k) integration and beyond

Early retirees often pull from several retirement savings accounts, each with its own rules and limitations. 401(k)s, Roth IRAs and brokerage accounts all play different roles. Some allow penalty-free withdrawals at 59½, whereas others have tax considerations or restrictions. Knowing when and how to draw from each source affects long-term outcomes.

With 401(k) integration and retirement plan technology integration, employees can view all their savings in one place. These tools allow them to model timelines, compare income scenarios and track progress toward early retirement. When accounts are connected to payroll and benefits, the planning process becomes more manageable and easier to follow.

Empowering employees to retire on their terms

Early retirement is a series of turning points — when to save, when to claim Social Security and how to plan for what comes next. Some people aim to retire at 64, while others prepare for 62, 59½ or even earlier. Each path requires clarity, flexibility and access to tools that match their goals.

HR leaders are uniquely positioned to help people hit an early retirement age. They can support better outcomes by connecting employees to planning resources and aligning retirement plan integration with payroll and benefits. An integrated benefits platform simplifies choices, reduces guesswork and brings early retirement within reach.

ADP offers integrated retirement solutions that help employees see the full picture — from contribution tracking to withdrawal modeling. With the right systems in place, employers can support a wide range of retirement journeys and help people make the leap with confidence.

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ADP Inc. owns and operates the ADP.com website. Unless otherwise disclosed or agreed to in writing with a client, ADP, Inc. and its affiliates (ADP) do not endorse or recommend specific investment companies or products. Please consult with your own advisors for such advice. Investment options are available through the applicable entity(ies) for each retirement product. Investment options in the “ADP Direct Products” are available through either ADP Broker-Dealer, Inc. (ADP BD), Member FINRA, an affiliate of ADP, Inc., One ADP Blvd, Roseland, NJ 07068 or (in the case of certain investments) ADP, Inc. Only registered representatives of ADP BD may offer and sell ADP retirement products and services or speak to retirement plan features and/or investment options available in any ADP retirement products.