How to Retire at 63: Step-by-Step Plan

Leaving the workforce before 65 is largely considered early retirement. The average retirement age in the U.S. is 62, showing that retiring early is not unusual in the U.S. Even if you retire a year later at 63, you should approach your retirement cautiously. After all, you’ll need to account for things like healthcare and a potentially smaller Social Security check.

Consider working with a financial advisor as you plan out your retirement goals.

Evaluating Your Retirement Resources

There are three steps required for any retirement plan, including one that entails leaving the workforce at 63.

1. Assessing your retirement resources
2. Estimating your needs and wants
3. Taking action to close any gap between your retirement resources and retirement needs and wants

1. Social Security

Early retirement can affect Social Security benefits. If you retire at 63, you can start drawing your Social Security benefits. They will be around 25% to 30% lower than if you wait until after your full retirement age (FRA), but you still have access to these funds.

Retiring later rather than earlier may benefit you in other ways. If you start drawing benefits after your full retirement age, you earn delayed retirement credits, which are additions to your benefits because you have waited until later to retire.

In other words, retiring at 63 doesn’t require starting Social Security benefits at that time. If possible, it’s wise to delay taking Social Security to increase those monthly benefits.

If you are part of a married couple, consider your Social Security benefits in the context of each other instead of separately. This is important because it accounts for spousal and survivor benefits to maximize your Social Security income.

When both spouses claim Social Security benefits, the individual with the highest earnings over their top 35 years will generally receive the larger benefit. If that higher earner claims benefits early, their monthly payments are permanently reduced. Should the higher-earning spouse die first, their benefit becomes the surviving spouse’s survivor benefit.

As a result, filing before full retirement age can permanently lower the survivor benefit. Even if both spouses plan to retire at age 63, they are not required to claim Social Security at that time. In many cases, the higher-earning spouse may benefit from delaying benefits to preserve a larger lifetime and survivor payout.

If you continue working but receive benefits before reaching full retirement age, your income will be subject to the Social Security earnings test. Earnings above the annual limit can temporarily reduce your Social Security benefits. Although benefits are recalculated once you reach full retirement age, it may take several years to fully recover the lost income.

2. Tax-Advantaged Retirement Plans

A defined contribution plan is an employer-sponsored plan that allows you to take pre-tax dollars and invest them in capital market securities.

There are several types of tax-advantaged plans, including:

• 401(k)
• Roth 401(k)
• 403(b)
• 457

Your contribution may or may not be matched by your employer. Unlike defined benefit plans, defined contribution plans offer no guarantees about your future benefit. They rise and fall with the market. If you plan to retire at 63 but have a few years left before then, the best strategy is to max out contributions to your plan each year.

In 2026, the maximum you can contribute per year to a 401(k) is $24,500. If you’re between 50 and 59 years old , you can deposit up to another $8,000 during the year. Starting in 2025, this increased to $11,250 for those aged 60 to 63. If your employer matches your contributions, the combined limit is $72,000 for 2026, excluding additional deposits based on age.

Be sure to keep income taxes in mind with these plans. Unless your company’s 401(k) is a Roth account, you will likely be subject to taxes when you withdraw money. So if you retire at 63, you will be subject to income taxes on the amount withdrawn but not penalties.

Individual retirement accounts (IRAs), which also come in traditional and Roth variations, may also be part of your retirement plan. These plans largely work the same once you reach retirement as their 401(k) counterparts.

With a traditional IRA, you’ll need to pay income taxes on your withdrawals. On the flip side, qualified withdrawals from a Roth IRA are tax-free.

3. Pensions

Defined benefit pension plans provide employees with a fixed, pre-determined benefit at retirement. They are fairly rare, but some government units still offer them. According to the Bureau of Labor Statistics (BLS) in 2025, 31% of civilian workers had access to defined benefit plans, and only 16% chose to participate. ¹

On top of Social Security, tax-advantaged plans and pensions, be sure to factor in any brokerage and savings accounts you may have.

Finally, you should have an emergency fund equal to at least six months of your monthly income. If you have an adequate emergency fund, you can take care of the emergency while hanging on to your retirement savings. 

The best place to keep your emergency fund is either a high-yield savings account or a money market account or fund.

The Healthcare Gap: Covering Ages 63 to 65

The two years between retiring at 63 and qualifying for Medicare at 65 are among the most expensive parts of early retirement.

Without employer coverage, you’re on your own for health insurance during a window when a single medical event can significantly impact your savings. It’s the number one reason retirement financial advisors tell people to think carefully before retiring before 65.

Consolidated Omnibus Budget Reconciliation Act (COBRA) is usually the first thing people look into. It lets you stay on your employer’s plan with no changes to your doctors or coverage. However, you take over the full cost, your share and the portion your employer was paying, plus a 2% administrative fee. According to KFF’s 2025 Employer Health Benefits Survey, the average annual premium for family coverage was $26,993, of which workers contributed $6,850 and employers covered the remaining $20,143. ² Under COBRA, you’d generally owe the full $26,993 plus a 2% administrative fee, or about $2,294 a month. It only lasts 18 months, so it won’t cover the full two-year gap. COBRA works well as a short-term bridge, but it’s expensive for the long haul.

ACA Marketplace plans can be a better deal if you’re strategic about your income. The Marketplace looks at your modified adjusted gross income (MAGI) to decide whether you qualify for premium tax credits. If you can keep your taxable income low during the ages of 63 and 64, you may qualify for subsidized coverage that costs far less than COBRA.

This is where healthcare planning and retirement income planning overlap. Here’s how different types of income contribute to your MAGI:

Leaning on Roth funds or cash savings during this window can keep your MAGI lower and open the door to meaningful subsidies.

If your spouse is still working and has employer coverage, getting on their plan is usually the easiest and cheapest option. Losing your own coverage due to retirement counts as a qualifying life event, so you can enroll outside of the normal open enrollment window.

Some people look at short-term health insurance as a cheaper bridge to Medicare. These plans do cost less, but they typically don’t cover pre-existing conditions, may cap benefits at a low amount and lack the consumer protections of ACA-compliant plans. For a healthy person with no ongoing medical needs, it might work. However, if something serious comes up, the gaps in coverage can be costly.

Whatever path you choose, don’t overlook the transition to Medicare at 65. If you’re not already collecting Social Security at that point, enrollment isn’t automatic. You have a seven-month window to sign up, starting three months before the month you turn 65 and ending three months after. If you miss that window, you could face a permanent increase in your Part B premiums of 10% for each year you were eligible but didn’t enroll.

Healthcare during this two-year window deserves its own line in your retirement budget. For many people thinking about retiring at 63, it’s the single biggest factor in deciding whether the timing makes sense. Running the numbers before you leave your job gives you a much clearer picture of what early retirement will actually cost.

How to Build an Income Bridge After Retiring at 63

Retiring at 63 creates a period when your paycheck has ended but some retirement benefits may not have started. Medicare generally does not begin until 65, and you may choose to delay Social Security rather than claim benefits immediately. Covering expenses during this period requires deciding which assets will provide your income.

Cash savings can help pay near-term expenses without requiring you to sell investments. A taxable brokerage account offers another potential source of funds, although investment sales may generate capital gains or losses. Traditional 401(k) and IRA accounts can also provide income at 63 without the 10% early-withdrawal penalty that generally applies before age 59 ½, although distributions from traditional accounts are generally taxable.

You don’t necessarily have to rely on one account. For example, you could use cash for regular expenses, sell investments when additional money is needed and take selected distributions from retirement accounts. Part-time employment could provide another source of income and reduce the amount you need to withdraw from your savings.

Healthcare expenses add another consideration during the two years before Medicare. Your income can affect eligibility for premium tax credits on an ACA Marketplace plan. Traditional IRA and 401(k) withdrawals can increase modified adjusted gross income, while qualified Roth IRA withdrawals generally do not.

The order in which you use your assets can therefore affect your taxes, healthcare costs and remaining retirement balances. Before retiring, you can estimate the income you’ll need at 63 and 64 and compare different combinations of savings, investments and retirement account withdrawals to determine how you could cover the gap.

Estimating Your Retirement Expenditures

Whether you will have enough retirement savings plus Social Security benefits at 63 is completely individual. It is often recommended that, if you are 60, you should have eight times your salary saved for retirement. If you earn $50,000 per year, that is $400,000, not counting your Social Security benefit, which averaged $2,071 per month for retired workers in January 2026. Most people count on needing approximately 80% of their pre-retirement income for a comfortable retirement.

Taxes and Other Costs

You also must consider the tax liability on your Social Security benefits compared with the taxes on other retirement income. Depending on your total income, up to 85% of your Social Security benefit can be taxable, but the untaxed portion still provides some tax-free income each year. IRA withdrawals, by contrast, are generally taxed as ordinary income on the full amount withdrawn, so comparing the two requires looking at your specific tax situation and total income sources.

Unless you have a Roth IRA or Roth 401(k), you will pay taxes on your pension income. Taxes will further reduce it at your marginal tax rate. For example, if you are in the 22% tax bracket, you will net roughly $780 for every $1,000 withdrawn that falls within that bracket. If you work during retirement, you may be further taxed on your Social Security benefit if you retire and start working at 63, before your full retirement age.

Don’t forget annual property taxes and additional expenses, such as homeowners insurance and the monthly cost of utilities.

Differentiating Between Needs vs. Wants

Some expenses may increase or emerge for the first time during retirement.

Travel is a common example, as retirees often choose to travel more than they did during their working years. If having additional discretionary income for leisure is a priority, consider reducing nonessential spending, such as unused subscriptions, frequent coffee purchases or higher-cost clothing in favor of more affordable alternatives.

Monitoring your bank balances regularly can help ensure you remain on budget and quickly identify any unauthorized activity. At the same time, certain expenses may decline in retirement, including commuting costs, work-related clothing and ongoing retirement contributions.

Following a Retirement Budget

You should make a retirement budget based on your current expenditures. While you can use a spreadsheet or budgeting app, you can also use pen and paper. Follow your check register or a banking app on which you keep track of your expenditures.

Add up expenditures for a typical month, then mark them as essential or non-essential. You can list all expenses for a year, month by month. This will help you get a total expenditure tally by month and by year.

Following a retirement budget is crucial for maintaining financial stability and ensuring a comfortable lifestyle. Without a steady income from work, retirees rely on income sources like their savings, pensions and Social Security to cover expenses.

A well-planned budget helps manage spending, preventing the risk of outliving savings while accounting for essential costs like housing, healthcare and daily living expenses.

See if your retirement savings is on track compared to what you expect your budget to be:

Taking Appropriate Remedial Action

The third step, after determining your resources and estimating your expenses, is to take action to close any gaps in your planning.

• If you aren’t contributing the maximum to your 401(k), start by cutting your non-essential expenses, particularly luxury items.
• Start saving in an IRA if you haven’t already.
  • You can open a traditional IRA, which requires you to pay taxes when you make withdrawals at a potentially lower, post-retirement tax rate.
  • You can also open a Roth IRA because you will not incur a penalty for withdrawals after age 59 ½. In 2026, you can contribute up to $8,600 per year if you are over 50.
• Consider buying an annuity from a reputable insurance company.
• Embrace a more prudent lifestyle to enhance your ability to save.

Bottom Line

Any retirement plan, including one where you leave the workforce at 63, requires a clear look at your retirement resources, expenses and desired lifestyle. This may involve turning a hobby into a part-time second career. You could also consider delaying retirement until you are closer to your full retirement age. Prioritizing an IRA and contributing up to the annual limit each year before retirement could provide another source of savings.

“Retiring before Social Security eligibility might seem like a big leap, but if you’ve saved consistently in retirement accounts at work or otherwise, you should have easy access to those funds without penalty. If early retirement appeals to you, meet with a financial planner as soon as possible to get a head start on modeling your potential income, considering Roth conversions, if applicable, and planning for taxes,” Tanza Loudenback, CFP®.

Tanza Loudenback, CFP® provided the quote used in this article. Please note that Tanza is not a participant in SmartAsset AMP, is not an employee of SmartAsset and has been compensated. The opinion voiced in the quote is for general information only and is not intended to provide specific advice or recommendations.

Retirement Planning Tips

• Consider working with a financial advisor as you create or update a retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Check out SmartAsset’s 401(k) calculator, which will help you decide how much to contribute to your 401(k). In addition, take advantage of SmartAsset’s Social Security calculator to help you determine your benefits.

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