Nobody really likes work. Well, maybe a select few, but to the majority of us, we work because we need to. We have to earn money in order to live, it’s pretty simple.
If you woke up tomorrow and found out that you have legitimately won 100 million dollars, would you quit your job?
Perhaps, perhaps not. Point is, that a lot of people work intending to earn enough to retire early and most folks will reach this point around the age of 66. You may be thinking that you’d like to retire earlier, but in doing so you may run into some problems with your social security benefits.
It’s important to be prepared for the unforeseeable financial situations that may be lurking around the corner, waiting for you to make one small misstep. To help avoid this scenario, let’s break down how retiring early can impact your social security benefits.
How Do They Estimate Social Security Benefits?
You can start collecting your social security benefits once you turn 62 years old; however, you will receive the minimum amount the earlier you start claiming. Basically, the sooner you take it the less you’re entitled to. This is because your payments are generated on 35 years of your highest earnings. This means if you opt to retire early, the years where you didn’t earn will be factored into the years that you did earn, resulting in a lower available amount. Remember, good things come to those who wait.
If you do choose to hold off until you reach the age of 67, you will be eligible for 124% of your benefits. And as noted, if you retire early, this benefit percentage may be lower.
It’s also worth pointing out that if you do opt for early retirement it can also impact your pension payments inevitably causing them to go down once you start collecting your social security benefits. To avoid this it’s best if you check with your employer or HR department and ask for details on the company’s pension terms and regulations.
There are online calculators that you can use to assist you with an estimate which makes preparing for your retirement a lot easier.
Delay Social Security Payments
If you still wish to retire early, you can still postpone the age at which you receive your social security payments. This allows you to utilize your savings and other benefits while continuing to maximize the amount of social security that you’ll be able to collect later.
Continue to Work After an Early Retirement
Some people elect to retire early and keep working part-time to continue to grow their savings accounts. It’s not highly recommended as this plan can backfire due to regulations put on social security earnings. If a retiree is 67 years or younger, continuing to work can potentially lower their benefits if they exceed these limitations.
On the other hand, if a retiree hits their full retirement age, the government will recalculate their benefits and turn over any funds that were withheld.
What you Decide
Retiring early isn’t something that’s for everyone, especially once you factor in all the details we just covered above. Before you jump in and make that decision, you’re going to want to weigh out just how these factors will affect your overall retirement plan. Once you have a good idea about that, then move on to making adjustments accordingly if you still insist on proceeding with early retirement.
Just like you should with every financial decision you make, be sure to restructure your budget and savings to better complement what you decided on. Think about the following:
How important is retiring early to you? What benefits will I get if I leave the workforce earlier than intended?
Is putting off drawing social security an option for me? If it is, how long can you comfortably sustain your lifestyle and still have enough for emergencies?
Will I lose money by retiring early? If you will, is it a lot? Is it worth it?
Early retirement is an important choice and one you’re not going to want to make abruptly. Take your time and consider all possible factors. There is no ‘general’ right or wrong answer that I can provide you with here as everyone’s stories are different. Once you think you know what you want to do, double then triple check it. If it still checks out, you’ve got yourself a plan.