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 are the fastest-growing demographic segment in America. We are still running a retirement framework designed for lives that no longer exist. That makes the conventional idea of retiring at 65 the single most dangerous piece of retirement advice in circulation.
It is time to rethink what retirement is and what it should look like, both for our health and for our finances.
The first multiplier
Claiming Social Security at 62 locks in a permanently lower benefit. The reduction relative to full retirement age is roughly 30%. Waiting until 70 increases the benefit by about 77% versus claiming at 62.
For most Americans, delaying Social Security is the single highest-return financial decision available to them.
Leaving the workforce to claim benefits early may feel like a good decision. In 1935, it would have been. Today it is not. For an average worker who would have received a monthly benefit of $2,500 at full retirement age, claiming at 62 cuts that to roughly $1,750 a month for life. Waiting until 70 raises it to roughly $3,100. Multiply the gap across a 30-year retirement and you are looking at well over a quarter of a million dollars in foregone lifetime income from a single click on a government website.
Most retirees do not get to make that decision twice.
The second multiplier
Retire at 62 instead of 67 and you do not just get a reduced lifetime income stream from Social Security. You also add years to the most fragile financial phase of retirement. Early retirement means you begin withdrawing from savings to live. Withdrawing during a market downturn locks in losses that permanently damage retirement security.
This is sequence-of-returns risk. You end up with less in savings to recover with when the markets rebound, because the bad years took the money before the good years could compound it. The early retirement years are when a portfolio is most vulnerable to bad market sequences, and starting five years earlier means five more years exposed to that vulnerability.
A 15-year retirement is one mathematical exercise. A 35-year retirement is another entirely. The portfolio that looked durable at 65 looks fragile at eighty when markets sell off, inflation rises, and there is still a decade or more of life ahead. The retiree at 62 will not see it until it is too late to recover.
The third multiplier
This is where Rogelberg’s reporting becomes critical for retirement planning. A working paper from the National Bureau of Economic Research, by economists at UC Irvine, found something more pointed than correlation. They found causation. Among American men aged 51 to 64, leaving the workforce led to measurable cognitive decline. Staying in led to greater sustained cognition. That is the Gen X window. That is my generation.
Late-life financial decisions are not simple. Tax-efficient withdrawals. Medicare premium brackets. Long-term care timing. Roth conversion windows. Estate decisions. The years when these decisions matter most are the years when, on average, our mental capacity to make them is shrinking. Retiring early does not just stretch the finances. It degrades the very instrument needed to manage them.
Cognitive decline during aging does not announce itself. It shows up in mistakes. Forgetfulness. Errors in judgment. It shows up as a portfolio that has not been rebalanced in four years. It shows up as a required minimum distribution that nobody caught in time. The science of healthy aging is one more reason the old framework breaks. The financial implications are barely understood.
A different architecture
The answer is not that everyone must work until 80. People burn out. Bodies wear out. Ageism pushes capable workers out before they are ready. “Just work longer” is a slogan, not a plan.
The answer is to re-architect retirement for a 30-year second act instead of a five-year one. That means two things, and the rest follows from them.
First, stay engaged in work that gives the brain a reason to show up. Paid or unpaid. The Okinawans call it ikigai, a reason to get up in the morning. The American version is simpler: stop treating 65 as the finish line.
Second, build a guaranteed income floor that can last into the eighties and nineties. You cannot afford to panic-sell in your 70s. Plan to 95. Stress-test to 100. Treat the decision of when to claim Social Security for what it really is: a longevity bet, made once, with no second click.
The retirement most Americans understand is built for shorter lives. The one they will live must be built for longer ones.
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.
