If you’re thinking about retiring early, you have a tough choice to make about Social Security. You’ll have to consider when to claim benefits and the impact your choice could have on the retirement income you end up receiving.
Before you move forward with your early retirement, there are three things you absolutely must know about your Social Security benefits so you can make the right choice.
1. If you claim benefits early, you’ll get a lower benefit
You do not have to claim Social Security benefits right after retiring. If you can afford to, you can – and perhaps should – wait. However, many people do need their Social Security to support them when they leave work.
You also give up any chance to earn delayed retirement credits that increase your benefits beyond the standard payout. However, these credits max out at age 70.
2. Not working for 35 years could shrink your benefit further
There’s another important consideration before retiring early. Your Social Security income is calculated based on your average, inflation-adjusted wages over the 35 years you earned the most. If you retire early and don’t actually have 35 years of work history, those years of $0 wages will factor into your benefits formula and shrink your checks accordingly.
Working exactly 35 years and no more could also reduce the income you get from Social Security. Every single one of the 35 years you were in the workforce would be included in your benefits calculation.
Since income tends to rise with age, retiring early meanspassing up the extra benefits you could get by replacing more of your low-earning years from early in your career with the higher salary you’re likely making prior to retirement.
