Retiring Early Can Impact Your Social Security Benefits–And Make Or Break Your Decision

May 7th, 2021

Social Security can be a confusing thing to plan for in retirement. What’s more, the age at which you retire can actually impact how your social security payments look. It’s important to understand your own wealth portfolio to know exactly how retirement will look for you.

How Social Security will work for you depends on your time working.

Social Security considers your highest 35 years of earnings when it comes time to determine your payments. And it pays you a percentage based on how much you earned in that time. This amount also considers the inflation that has taken place since the years you earned that money.

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flickr - Magnus Hagdorn Source: flickr - Magnus Hagdorn

If you are considering retiring early, it would be worthwhile to reflect on what your peak years of earnings have been up until this point. If you still have the possibility of experiencing some of your highest earning years, it may be worth it to hold on through that time, in order to maximize your Social Security payout.

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flickr - Mark Turnauckas Source: flickr - Mark Turnauckas

But retiring earlier can also mean you get a bigger payout.

Social Security determines your payout not only by the amount of money you earned during your peak income years, but also by considering how your earnings stack up next to the average. If you are at or below the average earnings for that year, you will receive a higher percentage of your wages as a payout than if you were paid much higher than average.

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flickr - Pictures Of Money Source: flickr - Pictures Of Money

If you have worked less than the 35 years that Social Security considers when determining your payout, means that you have less taxable income to consider. This will impact different factors of your Social Security, and may provide you with the chance to receive a higher percentage of your earnings.

It’s important to know and understand your own financial situation so that you can make the right decision for you.

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flickr - 401(K) 2012 Source: flickr - 401(K) 2012

Your Social Security payment is determined by your work experience, the amount of time you spent working, and the amount of money you earned. This system tries to create a more fair payout system by creating different levels of payouts for people at different financial levels. You should look into your work history in order to best determine what will work for you.

Before retiring officially, take a look at what your benefits would be.

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flickr - Steven Depolo Source: flickr - Steven Depolo

Helpfully, you can make an account with My Social Security, which will give an estimate at what you Social Security Benefits will be. However, these payments will only be accurate of the benefits you receive once you reach full retirement age (late 60’s).

If you have other assets, retiring early could be achievable for you.

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flickr - douglas Scortegagna Source: flickr - douglas Scortegagna

You will not be able to collect your full Social Security payment until your full retirement age. That means that if you do plan on retiring before full retirement, you should plan to have other income routes to tide you over. So, if you already experienced your 35 years of top earnings, and you have a rental property or a lot of investments (for example), it could be feasible for you to retire early and live comfortably.

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flickr - Inalaf Source: flickr - Inalaf

Social Security exists to make retirement a bit more manageable for all of us.

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flickr - Pug50 Source: flickr - Pug50

So if early retirement is not involved in your financial situation, don’t feel bad! Most people do not have enough in their personal savings or extra assets to retire early. That’s why Social Security and pensions are such good programs. They exist to help every person retire at a reasonable age, regardless of their financial portfolio.

To learn more about how early retirement impacts your social security, read here.

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Source: Can I Retire Yet?, Financial Samurai, Social Security, My Social Security