Many people dream of retiring early. If you've worked hard all your life, you may be eager to exit the workforce ahead of your peers, but doing so has its ramifications. First, if you retire too soon, you may not be eligible for health coverage under Medicare. That could leave you on the hook for costly private insurance. But retiring too early could also hurt you from a Social Security standpoint. Here's why.

Your benefits are earnings-based

Some people mistakenly think Social Security benefits are universal -- meaning, all seniors collect the same amount of money every month once they sign up. But that's not true at all. The monthly benefit you're entitled to during retirement will hinge on your personal wage history. That's where early retirement could prove problematic.

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To calculate your monthly benefit, the Social Security Administration takes your average monthly wage, indexed for inflation, over your 35 highest-paid years in the workforce. If you didn't work a full 35 years, you'll have $0 factored into your benefits calculation for each year you went without an income. Too many $0s could really bring down your monthly benefit. This could easily happen if you leave the workforce too early. 

When we talk about early retirement, we're not referring to one specific age over another. Full retirement age for Social Security purposes is age 66 to 67. You might consider early retirement to mean leaving the workforce at age 65 or under. From a benefits formula perspective, though, it's possible to retire as early as age 60 and have a full 35 years of work under your belt, or to retire at 65 without having racked up 35 years of earnings. It all depends on your personal work history.

Some people, for example, take time off to raise children. If you took a 15-year career break, you may not have 35 years of earnings by the time you even reach full retirement age. The point is to look at your personal wage history before you make the decision to leave the workforce for good. You may find that it's worth your while to work an extra year or two in order to avoid those dreaded $0s in your benefits calculation.

Another option to look at? Scale back to part-time work if you're ready to retire but need earnings to give you a full 35 years on the job. Obviously, part-time wages won't pay the same as a full-time job. But if you normally earn $80,000 annually and your employer allows you to drop down to part-time work for a year, $40,000 in wages to get factored into your benefits calculation is better than no earnings at all.

Think twice before retiring early

Early retirement is a goal worth pursuing, but before you make that call, see what it will mean for your financial picture. Working a few extra years could help ensure that you're eligible for Medicare as soon as you retire, that you're able to boost your IRA or 401(k) balance, and that you get more money from Social Security for the rest of your life.