Sarah and Amy's EPC Article: How Early Retirement Impacts Social Security
November 2021
How Early Retirement Impacts Social Security
Sarah Hannibal, CFA and Amy Spalding, Paraplanner, Walden Wealth Partners
When planning for retirement, it is important to ensure you have enough resources to meet your goals. Social Security is one of the income sources most of us rely on during retirement.
Have you ever wondered what happens to your Social Security benefits if you retire early or shift to a lower-paying job?
If you are facing this decision, we recommend you first download your Social Security Statement and learn how the Social Security system works. After you have the basics down, you can analyze your options. Do not rely on the numbers on your statement. They are calculated assuming you keep working until full retirement age at your current earnings. Calculators are available on the ssa.gov website so that you can weigh the options. You can also consult with a fiduciary financial planner or your local Social Security Administration office to evaluate your options.
Here’s a real-life example: Susan started scooping ice cream at 15, earning $436 that year. Today, she is 55 and an attorney earning a six-figure income. She has worked for a total of 38 years and has accumulated enough credits to qualify for Social Security Benefits. Her highest 35 years of earnings and a three-step formula are used to calculate the benefit.
According to her Social Security statement, if she continues working to her Full Retirement Age of 67, she will receive Social Security income of $3,264 per month. If Susan retires 12 years early at age 55, we computed that her Social Security income at age 67 decreases by $691 per month, from $3,264 to $2,573 per month—a 21% reduction ($8,292 per year).
If Susan has saved enough for retirement, she may be able to meet her retirement goals even with reduced Social Security income. If not, Susan may want to work longer to earn a higher Social Security benefit.
Social Security choices and decisions are complicated and depend on many factors beyond your retirement date. Take the time to learn about the Social Security program and, either on your own or with expert help, analyze your situation thoroughly to make the best possible decisions. As Benjamin Franklin said, “An investment in knowledge pays the best interest."