Social Security: How much could you lose by retiring early

You may be tempted to retire early (age 62, 63 or 64). You might dread waiting for the designated age for your generation to begin enjoying your golden years (age 65, 66, or 67). However, over time you’ll lose a lot of money if you start withdrawing Social Security too early.                                  

Retirement ages rising

Full retirement age, or the age when you can claim 100 percent of your Social Security benefits, has already increased from 65 years old to over 66 and continues to rise. Improvements in the health of older people and increases in life expectancy are cited as reasons for gradually raising the retirement age to 67. Upping the age even higher is always another possibility when Social Security is discussed in Washington.

Suppose you turn 62 this year, the earliest age possible to claim retirement benefits. Depending on your full retirement age, designated by Congress, your age at retirement could permanently reduce your monthly Social Security check by as much as 29.2 percent at age 62. If you were entitled to $1,000 a month at your full retirement age, for example, you would get only about $708 if you start benefits when you turn 62. Here’s what your reductions would amount to at other earlier ages.

  • Age 63: 24.2 percent
  • Age 64: 18.9 percent
  • Age 65: 12.2 percent
  • Age 66: 5.6 percent                             

For anyone born in 1960 or later, full retirement age will be age 67. Early withdrawals will cost:

  • Age 62: 30 percent
  • Age 63: 25 percent
  • Age 64: 20 percent
  • Age 65: 13.3 percent
  • Age 66: 6.7 percent

Keep in mind that benefits are calculated based on months you work, not years. Each month you wait beyond your 62nd birthday lowers your rate of reduction. There are strong arguments for waiting as long as you can. Collecting Social Security early permanently locks you into a lower monthly income. You are not entitled to 100 percent of your SS benefits unless you apply at your full retirement age (currently 66 and 2 months, set to rise gradually to 67 for people born in 1960 or after; possibly even higher later).         

Unless you set aside some money in emergency funds, IRAs (Individual Retirement Accounts), Roth IRAs, 401Ks, Annuities, Real Estate or REITs       . . . or you inherit a trust fund, your Social Security income probably won’t be enough if you retire early.                                                                 

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