Please ensure Javascript is enabled for purposes of website accessibility

Need Social Security to Retire Early? You'll Give Up a Chunk of Your Benefit Checks

By Christy Bieber – Nov 13, 2021 at 6:00AM

Key Points

  • Many people who retire early rely on Social Security as an income source.
  • You will face a benefits reduction if you claim benefits ahead of schedule.
  • The reduction in Social Security benefits lasts throughout retirement.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

An early Social Security claim comes at a price.

Early retirement gives you more time to enjoy your later years -- but it can be harder to do that if you don't have a lot of money to spend.

Unfortunately, leaving the workforce at a young age can sometimes mean forgoing a significant portion of your Social Security checks, an important source of income that can offer much needed support for retirees in their later years. 

Here's why early retirement could end up costing you when it comes to your retirement benefits. 

Older adult typing on laptop at table.

Image source: Getty Images.

Retiring early can have consequences for your Social Security checks

Many people who are interested in retiring early will find they don't have quite enough income to support themselves if they don't start their Social Security benefits when they leave the workforce.

After all, if you're leaving work in your early 60s, you'll have less time to save than if you'd stayed on the job longer. And you'll need to be even more careful about choosing a safe withdrawal rate from your retirement savings due to the fact your money must support you for longer. 

The problem is, if early retirement forces you to start collecting Social Security checks, that means you're claiming ahead of full retirement age, or FRA, which is between 66 and 2 months and 67, depending on the year you were born. Starting checks before your FRA is considered an early filing.

Penalties accrue on a monthly basis for early filers, and they result in a permanent reduction in the size of your checks. Each month you've filed early will reduce checks by 5/9th of 1% for the first 36 months and 5/12th of 1% for each month prior to that time. In other words, each of the first three years you've filed for checks ahead of schedule results in a 6.7% benefits reduction, and each year prior to that comes with an additional 5% cut to your checks (for a maximum cut of 30%).

While that may seem like a small price pay for being able to retire when you're still young, you have to remember these checks are probably your only guaranteed income source that will last the rest of your life. If your savings start to run out, these benefits will still be there for you -- and you may regret having reduced them if you're running short of funds late in retirement when it's too late to go back to work.

A decision to give up bigger checks can also have consequences for your spouse if you earned more than they did throughout your marriage. That's because filing for benefits early not only reduces your monthly income but also cuts survivor benefits. If you pass away first, your surviving widow(er) will be left with less income to live on and could end up struggling financially because of it.

Many seniors also end up with less lifetime benefits from Social Security if they've started their checks early, as those who outlive their projected lifespan end up better off with a delayed claim. Since you work hard to pay into this benefits program and earn your Social Security checks, failing to maximize your lifetime income can be something you regret.

Ultimately, you'll need to decide if early retirement is worth the price of reducing Social Security benefits for you and potentially for your surviving spouse. But be sure to consider this trade-off when assessing the timing of your retirement and how that factors into the downsides of having to start collecting your checks ahead of schedule.

The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.