Retiring at 62 can cost Americans $250,000, because longevity risk hits three times

The cost is real, and it stacks up fast: retiring at 62 instead of 67 can leave the average American roughly $250,000 in lifetime income on the table, according to the math Fortune’s Sasha Rogelberg reports from new National Bureau of Economic Research research. The headline number is the headline for a reason, but the bigger story is how longevity risk hits from three directions at once, not one.

Rogelberg’s reporting starts with what many people think is the “health story,” and then connects it to the “finance story” most retirees underestimate. The work described in Fortune says that Gen X workers who retire early pay a cognitive price. That matters because the years when early retirees are making their most complex financial choices are also the years when cognitive capacity is, on average, declining. In other words: early retirement stretches the timeline you need your decision-making to stay sharp.

If you are looking for the first multiplier, it is Social Security claiming age. Claiming Social Security at 62 locks in a permanently lower benefit because it reduces the benefit relative to full retirement age by roughly 30%. Waiting until 70 increases the benefit by about 77% versus claiming at 62. The Fortune piece frames this as the “highest-return” decision available to many Americans, because you only get one shot to set the lifetime stream. Using the example in the article: an average worker who would have received a monthly benefit of $2,500 at full retirement age would see about $1,750 at 62 for life, and about $3,100 if they wait until 70. Multiply the gap across a roughly 30-year retirement and you are looking at well over a quarter-million dollars in foregone lifetime income from a single decision on a government website. The key is that this is not temporary tinkering. It is permanent.

Then comes the second multiplier, and it is the part that sounds boring until you realize it is brutal: sequence-of-returns risk. Retire at 62 instead of 67, and you do not just get a smaller Social Security stream. You also add years to the most fragile phase of retirement, when retirees start withdrawing from savings to live. Withdrawing during a market downturn can lock in losses that permanently damage retirement security. The logic is straightforward even if the math feels personal: if the bad years happen early, you take money out before the markets have a chance to recover and compound those gains later. A 15-year retirement is one mathematical exercise. A 35-year retirement is another entirely. And starting five years earlier means five more years exposed to that vulnerability. By the time many retirees “feel” the damage, they are not in a position to easily repair it, because the portfolio has been weakened during the most harmful sequence.

Now for the third multiplier, where the Fortune reporting turns into what feels like a neuroscience argument disguised as retirement planning. The cited working paper from the National Bureau of Economic Research finds something more pointed than correlation. It reports causation: among American men aged 51 to 64, leaving the workforce led to measurable cognitive decline, while staying employed led to greater sustained cognition. This is the Gen X window, meaning it lines up with the exact period when people are deciding whether to pull the trigger on early retirement. The Fortune story highlights how late-life financial decisions are not simple. They include tax-efficient withdrawals, Medicare premium brackets, long-term care timing, Roth conversion windows, and estate decisions. Those are precisely the kinds of choices that become harder when mental capacity is, on average, shrinking. The piece also explains how cognitive decline can be subtle, showing up as mistakes: errors in judgment, forgetfulness, and financial oversights like a portfolio that has not been rebalanced in four years or a required minimum distribution that nobody caught in time.

If all of that sounds like the conclusion should be “work until 80,” the article is careful not to overreach. It explicitly argues that is not the answer, because people burn out and bodies wear out, and ageism can push capable workers out before they are ready. The point is that “just work longer” is a slogan, not a plan. Instead, Fortune’s framing is to re-architect retirement for a 30-year second act rather than a five-year one. That means two things. First, stay engaged in work that gives the brain a reason to show up, whether that is paid or unpaid. The story references the Okinawans’ concept of ikigai, a reason to get up in the morning, then translates the idea into a simpler American version: do not treat 65 as the finish line. Second, build a guaranteed income floor that can last into the eighties and nineties, because you cannot afford to panic-sell in your 70s. The article urges stress-testing to 100 and planning to 95.

Put it together, and longevity risk stops being a vague fear and becomes a design problem. The “65 myth” described in the Fortune piece underpins why this is getting worse: 65 was not a biological milestone. It traces back to Otto von Bismarck’s 1889 national pension system in Germany, and the age was imported into Social Security in 1935 by Franklin Roosevelt. The math worked then because most people were not expected to collect benefits for long. But the article notes that a 65-year-old American man can now expect another 18 years, and a woman another 21. Half of Americans will live a decade more, about one in four 65-year-olds will live past 90, and centenarians are the fastest-growing demographic segment in America. The retirement framework still matches shorter lives, not longer ones.

For executives, board members, and anyone who shapes benefits, workforce strategy, or planning products, the strategic stakes are clear. The decision to retire early is not just about personal cash flow. It is a compounding event that locks in a lower government income baseline, extends exposure to sequence risk, and coincides with the very period when cognitively complex decisions get harder. In today’s environment, longevity risk is not a footnote. It is a system-level risk that touches payroll policies, benefits design, financial education, and how institutions think about aging. The time to treat retirement like a one-time transaction is over.