The concept of retiring young—before age 65—brings with it a unique set of financial hurdles, particularly in the realm of health insurance and access to retirement funds like personal savings and Social Security. According to the Arizona State Retirement System (ASRS), retirees who are not yet Medicare-eligible face substantial health insurance premiums. In fact, for plans beginning in 2025, "rates for single coverage non-Medicare ASRS retirees are between $660 and $1,290 a month", compared to just $96.38 and $199.26 a month for those covered by Medicare, as stated on AzASRS.gov.
For retirees considering an exit from the workforce before reaching 59 ½, tapping into personal savings accounts might mean incurring a 10% penalty, in addition to the usual taxes and fees. It's a critical decision, since these savings are not inexhaustible like an ASRS pension. Early retirees must weigh the cost of this penalty against their immediate financial needs.
Then there's Social Security, which can be claimed as early as age 62, albeit at a reduced rate. "You’ll be taking a reduced benefit – an estimated 29% lower benefit than what your full Social Security would be," explains AzASRS.gov. The actual amount varies, depending on factors such as work history and age.
For some, the path to early retirement includes starting a second career, which can help offset high insurance premiums and protect personal retirement savings and Social Security benefits. According to the same source, "Receiving a paycheck from an employer and your ASRS pension2 could bridge the financial gap, allowing you to leave your personal retirement savings alone (or even keep adding to it) until there’s no penalty to withdraw." Meanwhile, employment that comes with health benefits eases the financial strain of pre-Medicare coverage.
Regardless of when one plans to retire, early or late, planning is paramount, and may even lead to postponing retirement to increase pension payouts. It's worth exploring all angles, and resources like the Retirement Central page at AzASRS.gov can provide valuable insights for those navigating the complexities of retiring young.
