Market performance often dominates discussions about risks to retirement plans, but spending shocks can significantly undermine a portfolio's longevity. In Morningstar's research, we explore the implications of two major types of spending shocks: unanticipated early retirement and uninsured long-term care expenses at the end of life. The former may require spending over a longer period, often with higher healthcare costs in the pre-Medicare years, while the latter can act as an effective "balloon payment" toward life's end.
Early Retirement: A Growing Reality
Early retirement—before the standard age of 65—is becoming increasingly common. While Social Security's full retirement age is currently between 66 and 67, the average retirement age is 62, according to a study from MassMutual. This is supported by Social Security filing data, which indicate that roughly 25% of retirees take Social Security when it's first available at age 62, and 15% file at 63 or 64. Nearly half of the retirees surveyed by MassMutual reported retiring earlier than planned, with reasons including layoffs, the ability to retire sooner than expected, or illness or injury.
Early retirement has profound implications for retirement spending, as longer drawdown periods necessitate lower spending to maintain a high likelihood of not depleting funds later. In our base-case spending simulation, extending the drawdown period from 30 to 35 years reduces the starting safe withdrawal rate from 3.9% to 3.5%. Stretching the time horizon to 40 years lowers the starting safe withdrawal rate to 3.2%.
Challenges of Early Retirement
Keeping withdrawals low in early retirement can be challenging on multiple levels. First, individuals are not eligible for Medicare coverage until age 65, so bridging healthcare coverage in the intervening years can increase spending. Insurance coverage for 62- to 65-year-olds from the ACA marketplace averaged between $800 and $1,200 a month in 2025, according to data from Boldin. Meanwhile, Cobra coverage (extending workplace-provided coverage) for people aged 62 to 65 averaged $700 to $1,500 a month. For a 62-year-old taking a safe withdrawal rate of 3.5% ($35,000) from a $1 million portfolio, healthcare costs would consume roughly a third of those withdrawals.
Further complicating matters for young retirees is that many wish to delay Social Security to increase their eventual benefits. However, delaying Social Security can necessitate higher withdrawals in the early part of retirement, potentially jeopardizing the portfolio's ability to last over the longer time horizon.
Long-Term Care Spending: A Late-Life Shock
Just as early retirement can cause a spending shock at the front end of retirement, long-term care costs can prompt a spending shock later in life. A 2025 report authored by Spencer Look and Jack VanDerhei of the Morningstar Center for Retirement & Policy Studies found that 43% of baby boomers will incur long-term care costs, with the average cost of that care being $242,373. The likelihood of needing care correlates with longevity: while just 24% of men and 27% of women who die at age 75 will require long-term care, 52% of men and 60% of women who die at age 95 will require it.
Incurring sizable long-term care costs can have catastrophic effects on a financial plan. The Morningstar study found that when long-term care costs are included in the analysis of the viability of retirement assets, 41% of older-adult households that incur long-term care costs are likely to run out of funds.
Strategies to Mitigate Long-Term Care Risks
Older adults can adopt various approaches to address this risk. They might set aside a separate long-term care "bucket," distinct from their spending portfolios. Others may plan to use home equity. Alternatively, those with very tight finances might create a spending plan to cover costs during their healthy years, then rely on government resources if they require long-term care after that. The final option is to build long-term care costs into the spending plan, spending less throughout retirement to account for the possibility of a spike later in life.
To model a long-term care shock, we assumed spending in years 29 and 30 to be twice what spending was in year 28. Factoring in that type of shock, the starting safe withdrawal percentage for a person retiring and claiming Social Security at age 67 is 3.5%, compared to 3.9% for our base case without that shock.
This article was provided to The Associated Press by Morningstar. Christine Benz is director of personal finance and retirement planning for Morningstar and co-host of The Long View podcast.
