Retiring at 62: What's Your Target Savings Number?

Reaching age 62 opens the door to claiming Social Security benefits and leaving the workforce earlier than traditional retirement ages. Yet this path demands rigorous financial planning—you’re potentially looking at 25-30 years of expenses to fund from your own resources. The figure you need to retire at 62 hinges on three pillars: your anticipated annual spending, available income streams, and how aggressively you’ll draw down savings.

Calculating Your Retirement Target

Financial institutions like Fidelity have established benchmarks to guide early retirees. The Fidelity 10x Rule suggests accumulating ten times your annual salary by age 67. However, those aiming to retire at 62—five years ahead of full retirement age—should target 14x their current salary instead.

Consider a practical example: earn $115,000 annually, and you’d need approximately $1.61 million tucked away by age 62.

The 4% rule provides another calculation method. This principle assumes your portfolio will sustain a 30-year retirement if you withdraw 4% in year one, then adjust that figure upward each subsequent year to account for inflation. Start with $1 million in savings? Your first-year withdrawal would be $40,000. If inflation runs at 3% the next year, bump that to $41,200.

How Social Security Shapes Your Strategy

The calculus changes substantially once Social Security enters the picture. Unlike those retiring at 40 or 50, a 62-year-old retiree qualifies for these benefits—though claiming them early carries a permanent penalty.

If your full retirement age benefit would be $2,000 monthly at 67, claiming at 62 reduces this by roughly 30%, dropping you to $1,400. That gap means your personal savings must work harder. Conversely, delaying Social Security until 67 restores full benefits, or waiting until 70 yields an 8% annual increase in monthly payments.

The trade-off is stark: immediate income versus future security. Those with supplemental income sources—rental properties, dividend portfolios, part-time consulting—gain flexibility to delay benefits and let their nest egg compound longer.

Bridging the Healthcare Gap

One often-overlooked barrier to retiring at 62 is healthcare coverage. Medicare doesn’t arrive until 65, leaving a three-year window where you’re responsible for your own insurance. Options include:

• Purchasing Affordable Care Act marketplace plans, sometimes with steep premiums
• Deploying a health savings account (HSA) to cover medical expenses tax-efficiently
• Securing part-time work that includes employer health coverage

These three years can be expensive. Fidelity estimates a 65-year-old retiring in 2024 will spend roughly $165,000 on healthcare throughout their remaining lifespan—a substantial portion concentrated early.

Tax-Smart Withdrawal Sequencing

The order in which you tap retirement accounts matters significantly. Required minimum distributions (RMDs) don’t begin until age 73 (or 75 for those born in 1960+), but strategic withdrawals before then can minimize lifetime tax burdens.

Roth IRA conversions allow you to pay taxes now on converted amounts, after which funds grow and eventually withdraw tax-free. Withdrawal sequencing—systematically drawing from taxable accounts first, tax-deferred accounts second, tax-free vehicles last—maximizes after-tax income across your retirement years.

Building Your Retirement Budget

Start by auditing your current spending across categories:

• Housing (mortgage/rent, property taxes, maintenance)
• Healthcare and insurance premiums
• Daily essentials (food, transportation, utilities)
• Discretionary spending (travel, hobbies, entertainment)
• Taxes on withdrawals and Social Security benefits

Many discover that relocation to lower-cost regions, downsizing homes, or eliminating debt substantially extends their runway. A $50,000 annual expense requirement demands far less capital than a $100,000 lifestyle.

Portfolio Construction for the Long Haul

Sustaining 25-30 years of withdrawals requires balancing income generation with growth. Dividend-paying stocks and bonds provide steady cash flow, while maintaining stock exposure ensures your portfolio keeps pace with inflation. Annuities and real estate investments can create predictable income streams that reduce reliance on portfolio withdrawals.

The key is avoiding the twin pitfalls of depleting funds too quickly through excessive withdrawals or keeping too much in cash and missing inflation-adjusted growth.

The Bottom Line

Retiring at 62 is achievable but demands precision. You’ll need to reconcile your target expenses with Social Security timing, navigate the Medicare maze, and structure withdrawals tax-efficiently. Whether you’re drawing down substantial personal savings, relying on pensions and Social Security, or blending multiple income sources, the pathway to retire at 62 exists—but only with intentional planning and regular reassessment.