Retiring at 62 costs the average American $250,000. Here’s the math (and the neuroscience) that explain why
The biggest financial risk most American retirees still underestimate is not the market. It is longevity. The risk of outliving the plan. Fortune‘s Sasha Rogelberg reported in May on new research from the National Bureau of Economic Research showing that Gen X workers who retire early pay a steep cognitive price for it. That is the health story, and it is real. The financial story underneath it is bigger, and it is the one most still do not understand. Retiring at 62 instead of 67 amplifies longevity risk in three directions at once. It locks in a permanently lower Social Security benefit. It stretches the most fragile decumulation window by five years, exactly the years when sequence-of-returns risk does the most damage. And it accelerates cognitive decline in the very period when retirement decisions get more complex, not less. For an average earner, that single set of choices is roughly a quarter-million dollars in lifetime income left on the table. The conventional wisdom told a generation that early retirement was the reward. The math, the data, and now the neuroscience tell a different story. The 65 myth Start with the number itself. Sixty-five was never a biological milestone. It can be directly traced to 1889, when German Chancellor Otto von Bismarck established it as the basis for Germany’s national pension system. The retirement age was first set at 70, then lowered to 65, chosen so that the first national pension system could offer generous benefits and cost the state virtually nothing. The reason was simple: hardly anyone lived much longer than 65 at that time. That number was imported by Franklin Roosevelt into Social Security in 1935. The math worked then because most Americans were not expected to collect a benefit. No longer. A 65-year-old American man can now expect another 18 years. A woman, another 21. That is the average. Half of Americans will live a decade more. Roughly one in four 65-year-olds today will live past 90. Centenarians