Social Security & Early Retirement: Risks and Benefits

If you are nearing retirement, issues regarding your social security are bound to start coming up. There is a lot of concern about whether to take social security early or to wait until later on in life. A significant number of people perceive that social security early retirement is the best after having paid a good amount in taxes throughout their careers. Well, it is imperative to note that both risks and benefits are involved. As such, you need to follow a careful approach in order to settle with the most favorable option. This post will provide a detailed account of the impact of early retirement on social security benefits.

How Will Early Retirement Impact Your Social Security Benefits?

Many people desire retiring early. However, what you might not know is that early retirement may end up reducing your social security benefits. Your retirement age is the moment you begin getting your social security retirement benefits. Usually, you require at least 40 credits of work so that you can receive these benefits.

Bonus read: Roth vs 401k – Which is Right for You?

The social security benefits that you receive are based on your highest-paid 35 years of work. If you worked for less than that, the other years will be counted as zero. The amount will be totaled, then averaged out into monthly earnings. Keep in mind that even if you worked for 35 years, some years might still be low earning years. The years’ earnings will also be averaged and will result in lower benefits compared to if you continued working.

You can start getting your retirement benefits at the age of 62, at the earliest. Retiring before you hit the full retirement age will ultimately result in minimized benefits. However, if you reach your full retirement age, you will get your entire retirement benefits. If you delay claiming your benefits up until the age of 70, your social security benefits will increase. This is to say, if you’ll be depending on your retirement benefits as your sole source of income, it’s more sensible to retire later in order to increase your average earnings.

The Risks of Taking Social Security Early

1. Your benefits will reduce

As of 2012, claiming your social security early retirement at the age of 62 rather than when you are 66 meant the benefits you receive will be 25 percent lower every month. This is one of the major risks for receiving early social security. For instance, if you were born in 1953, earned $75,000 every year, and you started collecting at the age of 62, you would receive $1410 in benefits every month.

However, if you started collecting at the age of 66, you would receive $1951 on a monthly basis. If you choose to collect your social security benefits at the age of 70, the oldest age to claim your benefits, you would receive $2638 every month. As you can see, the longer you wait to collect, the more your monthly earnings.

2. Outliving your retirement earnings

Another risk to social security early retirement is outliving your resources. Frankly, nobody knows how long he or she will leave. Death is uncertain. As a result, you may end up living longer than you had anticipated and end up outliving your resources. Your earnings may deplete because retirement programs such as the 401 (k) plan or the IRA have a fixed resource base. This means that if you start collecting your retirement benefits but end up living up to 100 years, you run the risk of depleting your resources.

However, if you are patient enough to collect your retirement benefits at the age of 70, you will increase the benefits from your retirement plan and increase the chances of the resources lasting all your life. Inflation is another factor that affects social security benefits. You should expect your retirement benefits to increase with inflation while the purchasing power of these benefits continue being constant.

3. Your spouse may end up being affected

Another downside to social security early retirement is the risk of minimizing your wife or husband’s retirement resources, especially if you used to earn more than her or him. As of 2012, social security early retirement penalty entails cutting approximately 25 percent of the benefits you would be receiving had you waited until the age of 70. Keep in mind that these cuts happen when you pass on. At retirement, married couples receive the higher of their own benefit or 50 percent of their spouse’s benefit. Therefore, if you are the higher earning couple and you take your social security benefits at 62 rather than 66 or 70, your spouse may end up getting significantly lower benefits.

4. Lower Earning Limits

Another risk to social security early retirement is standing the risk of getting your benefits reduce even more if you are still working. Keep in mind that this will reduce your already minimized benefits, a move that mostly applies to individuals that earn a lot of money each year. However, if you wait until full retirement to collect your benefits, you are not limited to the amount of money you can earn while working.

According to the 2012 Social Security stipulations, individuals that earn more than $14,460 each year are subject to getting their earning limits reduced if they decide to receive their benefits at the age of 62. Here, these individuals lose $1 in benefits for every $2 beyond the earning limits. On the other hand, if you take your benefits at the age of 66, you are allowed to earn $38,880 before you start to lose your benefits. Here, cuts on your benefits are made at a rate of $1 for every $3 above the earning limits.

Are There Benefits to Drawing Social Security Early?

1. You can start a new career

Taking early retirement can be an opening for you to start a new career. You will be free to pursue things that you have developed a deep interest in. Opening your own business works better when you haven’t aged much. You will have enough time on your hands to grow your business. Additionally, it is a fact that you’ll be more active when you are 60 as compared to when you’re 70.

Bonus read: 9 Best Places to Retire Early

2. It may be good for your health

Overall, early retirement may be good for your health. This is because you won’t have to deal with work-related stress anymore. Rather, you have more time to relax and work on improving your mental health. Not to mention, those who earned higher incomes have access to better pensions.

3. You have more time to indulge in hobbies

Well, with retirement benefits coming in, you have more time to enjoy your hobbies. You can travel all you want and since you have the energy to carry out different activities, you can indulge in most of your passions.


Today, the earliest age for one to start receiving social security benefits is 62. On the other hand, the oldest age to begin collecting your social security benefits is at 70. Numerous forces push people towards early retirement but as indicated, there are more risks than benefits for social security early retirement. Mainly, early retirees end up getting reduced benefits.

If you have any additional information concerning early retirement and social security benefits, feel free to give us your input.

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