Social Security retirement benefits play a significant role in retirement budget planning for many people. If you are one of those, you may be wondering at what age you should retire and start accepting your benefits. Whether you choose early, on time, or late retirement will likely impact your retirement budget more than you may realize. In this article, I work to help you understand the financial repercussions of retiring early so you can make an informed and wise decision.
The Social Security Retirement System
The Social Security Retirement system has been around since the 1930s and is based on contributions workers make into the system. While you are employed, you pay into Social Security and then you receive benefits later, when it’s your time to retire. On your paycheck, the contributions will appear as the Federal Insurance Contributions Act (FICA) taxes. To qualify for benefits when you retire you must accumulate sufficient credits, based on your earnings, over the course of your working years. The amount you need to earn to accumulate a credit has increased over the years to keep up with inflation. For example, for 2022, you get one credit for every $1,510 you earn, up to a limit of four credits per year. Once a credit is earned it remains on your record forever. If you were born after 1929, you need 40 credits to receive Social Security retirement benefits. The earliest you can start receiving payouts from Social Security Retirement is age 62 and the latest is age 70; however, you may choose to begin anywhere in that eight-year span.
How Much Will I Receive in Social Security Retirement Benefits?
Your monthly benefit amount will depend on factors such as the age at which you begin receiving benefits and your earnings during the time prior to retirement. You can find out how much you have paid to date as well as get an estimate of what your benefit will be by navigating to the Social Security Administration’s website. You can also download a summary of your benefits from the website or you can request a statement at any time by calling the SSA (800-772-1213) and asking for a form SSA-7004. Your statement provides a record of your earnings history, the number of credits you have accumulated to date, and an estimate of the retirement benefits available if you wait until full retirement age.
Retiring Early: Should You Do It?
Currently, the “on time” retirement age is between 66 and 67 years old. Early retirement begins at age 62, and you can delay retirement until age 70. If you retire early, your retirement benefit amount will be reduced. If you delay retirement your benefit amount will be increased by 8% per year until age 70. There can be a significant difference is your monthly retirement benefit amount if you retire early or late.
If you retire early, your benefit amount is reduced 5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month. For example, if the number of reduction months is 60 (the maximum number for retirement at 62 when normal retirement age is 67), then the benefit is reduced by 30 percent. This maximum reduction is calculated as 36 months times 5/9 of 1 percent plus 24 months times 5/12 of 1 percent.
Conversely, your retirement benefit amount is increased by up to eight percent (depending on your year of birth) for every year you delay receiving benefits, up to age 70. In other words, your monthly retirement benefit amount could be up to 24 percent higher than your “on time” retirement benefit or more than twice your early retirement benefit amount.
It is important to choose wisely, because both the decrease and increase in your benefit amount will remain with you for the rest of your life.
Retiring Early: If You Have Questions, Contact Us Today
For more information, or if you have additional questions or concerns about retiring early, contact my office and speak with one of my experienced staff members calling 410-654-3850 to schedule an appointment.
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