Many people dream of retiring early and claiming Social Security benefits as soon as possible. You can start your Social Security retirement benefits as early as age 62, but deciding to retire and claim benefits at 62 rather than your full retirement age (65 for those born in 1937 or earlier) will result in a permanently reduced monthly benefit amount.
Just how much money will you lose out on if you claim Social Security at the earliest age of 62 instead of waiting until your full retirement age of 65 or later? Let’s take an in-depth look at the impact of early retirement plan on your Social Security income.
Factors That Determine Your Full Social Security Benefit
Your full monthly Social Security benefit, or “primary insurance amount,” is calculated based on your:
- Highest 35 years of earnings
- Age when you first claim benefits
Anyone eligible for Social Security can begin claiming retirement benefits at age 62, but this will permanently reduce the monthly benefit compared to waiting until full retirement age.
For anyone born in 1937 or earlier, full retirement age is 65. If you were born more recently, your full retirement age is incrementally higher, reaching age 67 for anyone born in 1960 or later.
Waiting beyond full retirement age up until age 70 increases your benefit amount due to delayed retirement credits. Age 70 is the latest you can wait to take benefits that are icnreasing.
Why Retiring at 62 Reduces Your Benefit Amount
Claiming Social Security at age 62 reduces your primary insurance amount by about 25% compared to waiting until full retirement age. This reduction is permanent – it lasts the rest of your life.
Why does claiming early reduce your benefit amount? It comes down to the fact that when you claim Social Security early at age 62, you receive benefits for more years over your lifetime compared to waiting.
To compensate for paying benefits for longer, the Social Security Administration reduces your monthly benefit amount. Your lifetime benefits will total about the same regardless of when you claim, but the monthly payment is smaller if you claim earlier.
Calculating the Average Social Security Benefit Reduction
How much could your monthly Social Security benefit be reduced by claiming at age 62 if your full retirement age is 65? Let’s consider some examples to illustrate the impact.
- Full retirement age is 65
- Full retirement benefit amount is $1000/month
- Claim age is 62 (36 months before full retirement age)
Reduction: 5/9 of 1% per month before full retirement age
- 36 months x (5/9 of 1%) = 20% reduction
- Full benefit amount: $1000
- Reduced amount (age 62): $1000 x 80% = $800
Result: Claiming at age 62 instead of 65 reduces benefit by $200 per month
- Full retirement age is 65
- Full retirement benefit amount is $2000/month
- Claim age is 62
- Full benefit amount: $2000
- Reduced amount (age 62): $2000 x 75% = $1500
Result: Claiming at age 62 instead of 65 reduces benefit by $500 per month
As these examples show, the reduction for early retirement depends on your scheduled full monthly benefit amount. The higher your full benefit, the larger the dollar amount lost by claiming early.
Estimating Your Social Security Check
How can you estimate what your own retirement benefit might be if you claim at different ages? The Social Security Administration website, ssa.gov, offers calculators and benefit estimators you can use.
To use the Retirement Estimator, you’ll need to enter your date of birth and earnings history. For an estimate based on your actual earnings record, you’ll need to create a “my Social Security” account on ssa.gov and use your online account to view your personalized estimate.
This estimate will show your projected monthly payment at age 62, full retirement age, and age 70 – allowing you to see the difference in dollar amounts for early versus later claiming.
If you have an average earnings history, claiming at your full retirement age of 65 rather than the earliest age of 62 will get you 75% of your full benefit rather than 80%. But for a personalized estimate, use the SSA’s online calculator.
Break-Even Analysis on Claiming Age
Another factor to weigh when deciding on your Social Security claim age is how long you expect to live. Claiming early results in lower monthly payments, but for more years. Claiming later means fewer years of benefits, but higher monthly amounts.
The “break-even” age is when the higher cumulative lifetime benefits from waiting to claim cross over and surpass the lower cumulative benefits from claiming early.
For example, if your break-even age is 80 and you claim at 62 instead of 65, you’ll come out ahead if you don’t live beyond age 80. If you live past 80, you’ll end up with higher total benefits by waiting.
Break-even analysis can help inform your decision on when to take Social Security, but your actual monthly income needs and longevity expectations should carry more weight.
Impact of Early Retirement on Spousal or Survivor Benefits
If you’re eligible for Social Security benefits on your spouse’s record, claiming early can also reduce those spousal or survivor benefits.
The earliest you can claim spousal benefits is age 62. If you claim spousal benefits before your own full retirement age, they will be reduced just like your personal benefit based on your own work record.
Survivor benefits can be claimed as early as age 60. If you claim survivor benefits early and are also eligible for a benefit based on your own work history, your survivor benefit will be reduced.
One strategy is to claim Social Security early on your own work record, then switch to unreduced spousal or survivor benefits when you reach full retirement age. But check with Social Security about eligibility requirements for this “claim now, claim more later” approach.
Delayed Retirement Credits for Claiming After Full Retirement Age
Just as claiming early permanently reduces your monthly benefit amount, delaying claiming until after your full retirement age results in permanently increased payments through delayed retirement credits.
Here is how delayed retirement credits work:
- You earn 8% extra for each year beyond full retirement age up to age 70.
- At age 70, your monthly benefit maxes out at 132% of your full retirement benefit amount.
- Delayed retirement credits are earned for any whole months you delay claiming after reaching full retirement age.
Delaying retirement lets you increase Social Security income to help offset reductions from claiming other benefits like pensions early. If you have substantial retirement savings, delaying Social Security can allow your nest egg to grow larger as well.
Other Impacts of Retiring and Claiming Social Security at 62
Beyond just the reduction in your monthly Social Security benefit amount, there are some other important points to consider with early retirement:
- Retirement accounts – You can withdraw retirement savings without penalty after age 59 1/2. Withdrawing funds from 401(k)s or IRAs before then triggers a 10% early withdrawal penalty tax, on top of income taxes owed.
- Health insurance – If retiring at 62 before qualifying for Medicare, make sure you have affordable health insurance options through COBRA, a spouse’s plan, or the Affordable Care Act marketplace.
- Life insurance needs – Being eligible for Social Security survivor benefits may reduce your need for a spouse’s life insurance. But if you have dependents, sufficient life insurance is still essential.
- Higher future income – Additional earnings after claiming Social Security before your full retirement age will reduce your monthly benefit amount through Social Security’s earnings test if you earn above certain limits.
- Spousal coordination – Look at how your claiming age affects both your Social Security benefit and any spousal or survivor benefits your husband or wife may receive. Coordinate claim ages to maximize total retirement income for both of you.
Key Factors to Consider Before Deciding When to Claim Social Security Retirement Income
- How much will your monthly benefit be reduced by claiming early? Get a personalized estimate.
- Do you expect to live a longer-than-average lifespan based on your health and family history?
- Are you still working and need to factor in the earnings test?
- What other sources of retirement income do you have?
- How does your claiming age impact your spouse’s benefits?
For most people, waiting beyond age 62 to claim Social Security can help ensure you’ll have adequate income during a potentially long retirement. Talk to a financial advisor about the best age to start your Social Security based on your personal situation.
We’re Here to Help
You do not have to spend hours reading articles on the internet to get answers to your Medicare questions. Give the licensed insurance agents at American Entitlements a Call at (469) 814-0289. You will get the answers you seek in a matter of minutes, with no pressure and no sales pitch. We are truly here to help.
When can I start receiving my Social Security checks? For retirement benefits, you can begin receiving monthly Social Security checks as early as age 62. However, benefits are permanently reduced if claimed before your full retirement age.
How do early benefits affect my payment amount? If you file for Social Security before your full retirement age, which is generally 67, your monthly benefit will be lower than if you had waited. This reduction can be as much as 30% if claiming at the earliest age of 62.
What is the average Social Security payment? The average monthly Social Security retirement benefit for all retired workers in 2023 is estimated to be $1,827. However, actual individual benefits are calculated based on one’s personal earnings history and retirement age.
How do I know which start age is best? There’s no single “right” answer as it depends on individual factors. In general, waiting until full retirement age or older, up to age 70, ensures the highest possible lifelong total benefits from Social Security.
Can I work and still get Social Security? Yes, working in retirement will not affect your monthly Social Security payments as long as earnings remain under the yearly exempt amount, which is $19,560 in 2023. Any benefits withheld for high earnings are recalculated and paid once you pass back below the limit.