Social Security provides you with income after you retire based on the amount of money you contributed into the program through payroll taxes during your career. Retiring early reduces your total lifetime earnings, which may lower your Social Security benefits. Benefits are also cut if you choose to take them before your full retirement age.
The amount of Social Security income you get during retirement depends on how much money you earned during your career. Your Social Security benefits are based an average of your 35 highest-earning years of work. If you retire before you work 35 years your Social Security income will be lower than it would be had you continued to work. Even if you have worked 35 years, retiring early can reduce benefits if you earn more toward the end of your career than you did earlier in your career.
Full Retirement Age
Social Security payments are based on what the Social Security Administration calls your full retirement age. If you wait to take benefits until your full retirement age you get your full benefit amount, but if you take benefits early, you receive a reduced amount. As of 2012, the full retirement age was 65 if you were born before 1938. The age gradually increases for those born from 1938 through 1942. For those born between 1943 and 1954, full retirement age is 66. That gradually increases until it reaches age 67 for those born in 1960 or later.
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Taking Benefits Early
The penalty for taking benefits before full retirement age increases in severity the earlier you choose to take benefits. If your full retirement age is 67, your benefits are reduced by about 30 percent if you start taking them at age 62, which is the earliest age you can take benefits. Benefits are reduced 25 percent if you take them at age 63, 20 percent at age 64, 13.3 percent at age 65 and 6.7 percent at age 66.
Working While Receiving Benefits
Penalties for taking Social Security benefits before full retirement age increase if you continue to work while receiving benefits. According to the Social Security Administration, while you are under your under full retirement age your benefits are reduced by $1 for every $2 you earn in excess of a set income limit; in 2012 that limit was $14,640. In the year you reach full retirement age, benefits are reduced by $1 for every $3 earned above $38,880, as of 2012, until the month you reach full retirement age. Once you reach full retirement age, you can earn as much as you want with no cut in benefits.
- U.S. Social Security Administration: Understanding the Benefits
- AARP: Retired at 57. Will My Benefits Be Affected?
- U.S. Social Security Administration: How Work Affects Social Security Retirement Payments
- U.S. Social Security Administration: Your Retirement Benefit -- How It Is Figured
- U.S. Social Security Administration: How Work Affects Your Benefits
- U.S. Social Security Administration: Full Retirement Age
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