Retiring Early Could Slash Your Social Security Benefits. Here’s Why.

Be very careful when abandoning the workforce at a younger age.

Early retirement is a goal many people strive for — even though it can come with many challenges. For one thing, leaving the workforce at a relatively young age could mean limiting the extent to which your IRA or 401(k) can grow. It could also mean having to figure out what you’ll do for health coverage if you’re not old enough to enroll in Medicare. But there’s a less obvious drawback to early retirement that many seniors don’t think about until it’s too late. And it could leave you with a lot less income for life.

Will retiring early result in lower Social Security benefits?

The monthly Social Security benefit you’re entitled to in retirement will hinge on your earnings during your 35 highest-paid years in the labor force. But if you don’t work a full 35 years, you’ll have a $0 factored into your personal benefit calculation for each year you don’t have an income on file. So, let’s say you decide to retire early enough that you’re only left with a 30-year work history. That could result in a Social Security benefit that’s less generous than you’d like it to be. Now remember, Social Security is designed to pay you a monthly benefit for life. Unlike your savings, which you could potentially deplete in your lifetime, you don’t have to worry about your Social Security benefits running out. And so locking in a lower monthly benefit is a move that could cause you a world of financial stress later in life.

Before you retire, consider a career change

Some people retire early because they’re burned out at work and can’t stand the idea of having to plug away at a miserable job for another five to 10 years or longer. If that’s what’s largely driving your decision to retire early, there may be a better solution — switching careers. If you move over to a field that’s less stressful, you may not hate your job so much. And even if you end up taking a pay cut, having some money coming in for a few extra years is better than none at all. That way, you can avoid having to tap your savings early, and you can add a few more years of earnings into your Social Security benefit calculation. Another option to look at is scaling back to part-time work. It may be that you like what you do, but it’s very demanding in nature. If you’re in your late 50s or early 60s and can’t stand the idea of clocking in 50+ hour work weeks, try shifting over to part-time work. That way, you’ll still have an income on record, which could help from a Social Security standpoint.

Weigh your options carefully

Many people are able to retire early after having worked a full 35 years. But if that’s not your situation, be very careful about leaving the workforce at a relatively young age. Doing so could leave you with a lower Social Security benefit — and more financial stress later in life.