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The sooner you retire, the sooner you can start spending more time on leisure activities, family outings and other enjoyable and rewarding aspects of life. However, the age at which you decide to retire significantly affects your Social Security benefit. Early retirement means immediate access to funds but the financial penalty could possibly imperil your security and comfort after you stop working. Schedule a meeting with a financial advisor to review how Social Security can be part of your retirement plan.
Having to work for a living can get in the way of enjoying some of the best parts of life. That’s no secret, but not everybody understands how the age at which you elect to retire can affect the benefits you can get from Social Security.
The details of how this works can be somewhat complicated. The bottom line, however, is straightforward and black-and-white: The earlier you retire, the less you’re going to get from Social Security.
The Social Security Administration runs this national social insurance policy program, which through its various programs provides financial support to 63 million retirees, disabled workers, widows, widowers, ex-spouses and children of older or deceased parents. Benefits paid to retirees, their families and survivors are from the Old Age and Survivors Insurance program.
To be eligible to receive any Social Security retirement benefits you have to work and pay income taxes for at least 10 years. Beyond that, three figures – your income, number of years working and age at claiming — determine how much you are eligible to get once you elect to start receiving your Social Security benefits.
The way these three factors add up is somewhat complex but, basically, the more you earn and the longer you work and wait to claim, the higher your benefit. Addressing only the claiming age angle, you get the smallest benefit if you claim at the earliest possible age of 62 and the most benefit if you wait to be eligible for the maximum benefit at age 70, after which waiting has no effect on benefits.
For Social Security purposes, claiming benefits before full retirement age, which for most people is 67, means you’ll be penalized. Waiting to claim benefits after full retirement age, on the other hand, means your benefits will be increased.
The overall difference can be substantial. Claiming at 62, for instance, means you’ll receive 30% less than your benefit at full retirement age, assuming that is 67. Waiting until 70 means you’ll get 24% more in Social Security, because of delayed retirement credits, than if you’d claimed at full retirement age. In fact, your eligible benefit increases every year you wait after turning 62 and until your 70 th birthday.
This chart lays out how it works for someone with a full retirement age of 67:
| Claiming Age | Benefit Adjustment |
| 62 | -30% |
| 63 | -25% |
| 64 | -20% |
| 65 | -13.3% |
| 66 | -6.7% |
| 67 | 0% |
| 68 | +8% |
| 69 | +16% |
| 70 | +24% |
Claiming age doesn’t just affect your monthly benefits. It also has a large impact on the total lifetime benefits you are likely to receive if you live to the average life expectancy of someone your age. Again, the longer you wait, the more you get.
To see how this might work in real life, consider the hypothetical case of John, who retires and claims Social Security at 62. John’s full retirement age is 67, when he’ll be eligible for $2,000 per month.
Since retiring at 62 means a 30% reduction in monthly benefits, he’ll receive $2,000 minus 30% of $2,000 or $1,400 per month. This is a difference of $600 per month less compared to waiting until his full retirement age.
Importantly, this difference is locked in. For as long as he lives and receives Social Security, his benefits will reflect this $600 monthly penalty. Annual inflation adjustments may increase the size of this check, but it will always be $600 less, adjusted for inflation. Note also that this reduction affects any benefits paid to a surviving spouse by Social Security after he dies.
There’s also an impact on his total lifetime benefits. Assuming John lives to age 85, he would receive $45,600 less than if he’d waited until 67 to claim. Retiring at 62 means getting $1,400 a month for 23 years, a total of $386,400. If he waited until 67, he’d get $2,000 monthly for 18 years or $432,000. By waiting until age 70, John over his lifetime would receive $2,480 monthly for 15 years or $446,400, which is $60,000 more than he’d get by claiming at age 62.
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Deciding when to claim Social Security retirement benefits calls for carefully evaluating the financial impacts of retirement age on the monthly and total lifetime amount of eligible benefits. While early retirement offers plenty of appeal, it also may involve significant financial penalties.
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Mark HenricksMark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.
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