What is Retirement?

Retirement is the point at which you stop working full time and start paying your living expenses from savings, pensions, Social Security, and other income instead of a paycheck. It can happen all at once or in stages, and there is no single legal age at which it has to happen.

Financially, retirement reverses the direction your money moves. During your working years you add to savings; in retirement you draw them down, and the central question shifts from how much to save to how much you can spend each year without running out. Building toward that point is retirement planning, and the paycheck you create once you get there is your retirement income.

What Is the Retirement Age?

The US has no official retirement age. Instead, a series of ages unlocks or changes specific rules, and the one that matters most depends on when you want to stop working.

Full Retirement Age for Social Security

Full retirement age (FRA) is when you can collect 100% of your Social Security benefit. It was 65 for anyone born in 1937 or earlier. The Social Security Amendments of 1983 raised it gradually, starting with people born in 1938, to 66 for those born from 1943 through 1954 and to 67 for those born in 1960 or later. The first group with an FRA of 67 reaches it in 2027.

Claiming before FRA permanently reduces the benefit, and waiting past it permanently increases it. With an FRA of 67, claiming at 62 pays 70% of the full amount, and waiting until 70 pays 124%. Medicare eligibility did not move and is still 65.

Types of Retirement

Traditional retirement means leaving the workforce entirely, typically timed around the ages when Social Security and Medicare become available.

Early retirement means stopping work well before those ages, such as in your 40s or 50s. It is the goal of the Financial Independence, Retire Early (FIRE) movement, and it requires a portfolio large enough to cover spending for more years, plus a plan for health insurance and for reaching retirement accounts before 59 1/2.

Semi-retirement trades a full-time career for part-time or seasonal work, with earnings covering part of your expenses so the portfolio doesn’t have to cover all of them.

A mini-retirement is an extended break of months or a year or two taken mid-career, with the intention of going back to work afterward.

How Long Will My Money Last in Retirement?

That depends on how much you withdraw each year, how your investments perform, what inflation does, and how long you live. The withdrawal rate is the lever you control most directly.

Without any investment growth, $1,000,000 withdrawn at $50,000 a year lasts 20 years. Invested, it can last much longer, but not predictably. The 4% rule comes from William Bengen’s 1994 research, which found that withdrawing 4% of a starting balance and adjusting each year for inflation would have lasted at least 30 years across the historical US market periods he tested, using a mix of stocks and bonds.

Two things can undermine a plan that looks fine on averages. The first is sequence of returns risk: large losses in the first years of retirement, while you’re withdrawing, do more lasting damage than the same losses later. The second is longevity. Averages describe a population, not you, so plan for an age you’re unlikely to outlive rather than for average life expectancy.

If you run your plan through Monte Carlo simulations, you get a range rather than a single date: the share of trials, using historical or randomized market data, in which your money lasts as long as you do.

What Changes Financially in Retirement

Health insurance. Employer coverage ends when you leave unless your employer offers retiree coverage, and Medicare doesn’t begin until 65. Retiring earlier means bridging the gap with COBRA continuation coverage, a spouse’s plan, or an Affordable Care Act (ACA) marketplace plan, where premium subsidies depend on your modified adjusted gross income (MAGI).

Taxes. Without a paycheck, you decide much of your taxable income by choosing which accounts to withdraw from. The years between retiring and the start of RMDs can be a low-income window for Roth conversions.

Spending. Retirement spending doesn’t have to stay flat. One well-known pattern, the retirement spending smile, describes real spending that declines slowly in the early, active years, fastest through the middle, and slowly again late in life. On average it keeps falling rather than rising at the end, though healthcare or long-term care costs can rise sharply for an individual household.

Frequently Asked Questions

Is 65 still the retirement age? For Medicare, yes. For Social Security, full retirement age is 66 to 67 depending on your birth year, and 67 for anyone born in 1960 or later. You can retire at any age; these ages only determine when specific benefits become available.

When did the retirement age change from 65 to 67? Congress passed the change in 1983, and it phased in by birth year. People born in 1937 or earlier had a full retirement age of 65, those born 1943 through 1954 have 66, and those born in 1960 or later have 67.

Can I retire at 62? Yes. You can claim Social Security at 62, though the benefit is permanently reduced to 70% of the full amount if your FRA is 67. Retirement accounts are accessible without the 10% penalty after 59 1/2. The main gap is health insurance, since Medicare doesn’t start until 65.

Can you work after you retire? Yes. If you’ve claimed Social Security before full retirement age, benefits are withheld by $1 for every $2 you earn above an annual limit ($1 for every $3 in the year you reach FRA). Withheld benefits aren’t lost: your monthly benefit is recalculated upward once you reach full retirement age.

What’s the difference between retirement and financial independence? Financial independence means your assets and passive income can cover your expenses without a paycheck. Retirement means you’ve actually stopped working. Reaching financial independence makes retirement an option, and some people keep working anyway.