When you retire at age 62, your Social Security retirement benefits will be permanently reduced due to early retirement. The exact amount of the reduction depends on your full retirement age (FRA) and the number of months you claim benefits before reaching your FRA.
Reduced Benefits:
- Early Retirement Reduction: Social Security benefits are calculated based on your average earnings throughout your working career. However, if you retire before your full retirement age (FRA), which is 67 for people born after 1960, your benefits will be permanently reduced.
- Reduction Rate: The reduction rate depends on how many months before your FRA you retire. For each month before your FRA, your benefit will be reduced by 5/9 of 1% (approximately 0.56%). This reduction can amount to a significant portion of your total benefit, especially if you retire many years early.
- For individuals with an FRA of 66: If you retire at 62, your benefits will be reduced by 25% for the rest of your life. This means you will receive only 75% of your full retirement benefit.
- For individuals with an FRA of 67: If you retire at 62, your benefits will be reduced by 30% for the rest of your life. This means you will receive only 70% of your full retirement benefit.
Example:
Let’s say your full retirement benefit would be $1,000 per month. If you retire at age 62, you will receive a permanently reduced benefit of:
- $1,000 x (5/9 of 1%) x 60 months (5 years early retirement) = $300 reduction
- $1,000 – $300 = $700 monthly benefit
Delayed Retirement Credits:
- Increased Benefits: If you delay your retirement beyond your FRA, you will earn “delayed retirement credits.” These credits increase your monthly benefit amount by 8% per year for each year you delay claiming benefits until age 70.
- Full Benefit: You will receive your full, unreduced benefit amount when you reach your full retirement age.
Impact on Spousal and Survivor Benefits:
- Reduced Spousal Benefits: If your spouse receives benefits based on your earnings record, their benefits will also be reduced if you retire before your FRA. The reduction rate is the same as yours.
- Reduced Survivor Benefits: If you die before your FRA, your surviving spouse and children will also receive reduced survivor benefits.
Additional Considerations:
- Earnings Test: If you work and earn more than a certain amount while receiving Social Security benefits before your FRA, your benefits may be further reduced or even withheld.
- Tax Implications: Social Security benefits are taxable, and the amount of tax you owe depends on your income and filing status.
Important Points to Consider:
- The reduction is permanent: Even if you delay retirement beyond your FRA, the early retirement reduction will remain in effect.
- The reduction applies to all benefits: The reduction applies not only to your own benefits, but also to any survivor’s benefits that your spouse or children may be eligible to receive.
- Delayed retirement credits: If you delay retirement beyond your FRA, you will earn delayed retirement credits that will increase your benefit amount. These credits can be significant, so it may be financially advantageous to delay retirement if possible.
Here are some resources to help you learn more about how retiring at age 62 will affect your Social Security benefits:
- Social Security Administration website: https://www.ssa.gov/
- Social Security Retirement Estimator: https://www.ssa.gov/benefits/retirement/planner/AnypiaApplet.html
- Retirement planner: https://www.ssa.gov/prepare/plan-retirement
It’s important to carefully consider the long-term implications of retiring at age 62 and understand how it will affect your Social Security benefits. Consulting with a financial advisor can help you make informed decisions about your retirement planning.
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