Social Security Benefits: The Case Against Early Retirement

The  United States Social Security Administration has posted a list of official retirement ages. The Full Retirement Age is important as it determines when an individual will qualify for full social security retirement benefits. The Full Retirement Age (FRA) for receiving Social Security Benefits has been increasing gradually since Social Security benefits became effective. The FRA – Full Social Security Retirement Age began at age 62 and has increased to age 67. It is virtually certain that the Social Security FRA will continue to creep up as financial resources continue to become strained under the burden of a rapidly growing elderly population. As it currently stands, those born in 1960 or later will have to wait till they reach the age of 67 before they qualify for a full social security retirement benefit.

Of course it is possible to qualify for an early retirement benefit at a younger age – and in truth, with the state of the economy, many individuals approaching retirement have been taking advantage of this opportunity to get benefits now rather than delaying them until they reach the full retirement age.  In fact, according to Social Security Administration statistics, about 70% of all individuals who qualified for early retirement benefits last year chose to take the early retirement benefit - settling for a likely overall reduction in total benefits paid over the course of their lifetime.

In a few cases taking less money now may make more sense than waiting for the higher payout.  For example, if you are in poor health and/or are stretched beyond your current financial means you may feel it advisable or even necessary to sacrifice future earnings potential for a lower payout beginning today.

Either way, there is no getting around the fact that by opting for an early benefit stream today, the total benefit you will receive over the balance of your life will most likely be substantially reduced. I say most likely because we never really know when it will be our time to go. Someone who delays taking benefits and then passes on unexpectedly before reaching the magic Full Retirement Age will be out of luck.  Of course it is always wise to keep in mind that a surviving spouse may be entitled to a higher survivors benefit the longer you wait.  But let’s look on the bright side and assume that you will live well past your Full Retirement Age – a pretty valid assumption in most cases.

From a purely financial perspective then, it is generally not advisable to begin drawing social security benefits at an early age – if it is at all possible to avoid it. By claiming your social security retirement benefits early you stand to forfeit thousands or even tens of thousands of dollars over the course of your remaining life.

According to the Social Security Administration you can expect to lose a whopping thirty percent of your monthly income by beginning to draw retirement benefits 5 years ahead of schedule. So, for example, if you are scheduled to draw retirement benefits at age 67 but choose instead to file for social security benefits at the age of 62, then you will receive benefits – but at a level that is 30% less than what you would have received by waiting till your FRA Full Retirement Age. If you file 4 years ahead of schedule you can plan to receive a 25% reduction in your benefits. A three year early retirement will cost you 20% of your income, and so on. It makes a lot of sense to wait till you reach your Full Retirement Age before you file for Social Security Benefits.

Conversely, if you are in a position to delay your filing for social security benefits until some years after you qualify for full benefits, you will enjoy an even higher level of monthly and yearly income for the balance of your life. Call it delayed gratification… For this reason, some retired individuals choose to continue to work past the age of 70 in order to make ends meet so they can delay filing for social security benefits past their Full Retirement Age.  By following this strategy, they ensure a higher level of social security income  and attendant standard of living through their remaining retirement years.  And as our health care expenses tend to increase over time, those later years may be the years we need that extra income the most.