How Much Money Will I Lose If I Retire at 62 Instead of 65?
Retiring at 62 instead of 65 may seem tempting to many people who want to enjoy their golden years sooner rather than later. However, retiring early also comes with a trade-off: lower Social Security benefits. Social Security is a federal program that provides income to retired workers and their dependents based on their work history and earnings. The amount of your Social Security benefit depends on several factors, such as your age, your earnings, and when you start collecting benefits. In this article, we will explain how retiring at 62 instead of 65 can affect your Social Security benefit early and how much money you may lose by doing so.
Retirement Age
Your retirement age is the age at which you are eligible to receive full Social Security benefits. Your retirement age depends on the year you were born. For example, if you were born in 1960 or later, your retirement age is 67. If you were born between 1943 and 1954, your retirement age is 66. You can find your retirement age by using the [Social Security Retirement Age Calculator].
You can start collecting Social Security benefits as early as age 62 or as late as age 70. However, the age at which you start collecting benefits will affect the amount of your monthly benefit. If you start receive benefits before your retirement age, your benefit will be reduced by a certain percentage for each month that you claim early. If you start collecting benefits after your retirement age, your benefit will be increased by a certain percentage for each month that you delay claiming until age 70.
Full Retirement Age
Your full retirement age is the age at which you can receive 100% of your Social Security benefit. Your full retirement age is also called your normal retirement age or your primary insurance amount (PIA). Your PIA is based on your average monthly earnings during the 35 highest-earning years of your career, adjusted for inflation.
If you start collecting benefits at your full retirement age, you will receive your PIA as your monthly benefit. For example, if you were born in 1960 and your PIA is $2,000, you will receive $2,000 per month if you start collecting benefits at age 67.
Claim Early
If you claim early, you will receive a reduced Social Security benefit for the rest of your life. The reduction is permanent and it will not change when you reach your full retirement age. The reduction is based on the number of months that you claim early.
The reduction for claiming early is different for each year of birth. For example, if you were born in 1960 and you claim early at age 62, your benefit will be reduced by 30%. This means that if your PIA is $2,000, you will receive $1,400 per month if you claim early at age 62.
The table below shows the reduction percentages for different years of birth and different ages of claiming early.
| Year of Birth | Reduction at Age 62 | Reduction at Age 63 | Reduction at Age 64 | Reduction at Age 65 |
|---|---|---|---|---|
| 1943-1954 | 25% | 20% | 13.3% | 6.7% |
| 1955 | 25.8% | 20.8% | 13.9% | 7.2% |
| 1956 | 26.7% | 21.7% | 14.4% | 7.8% |
| 1957 | 27.5% | 22.5% | 15% | 8.3% |
| 1958 | 28.3% | 23.3% | 15.6% | 8.9% |
| 1959 | 29.2% | 24.2% | 16.1% | 9.4% |
| 1960 or later | 30% | 25% | 16.7% | 10% |
You can use the [Social Security Early or Late Retirement Calculator] to estimate how much your benefit will be reduced if you claim early.
Retire
If you retire, you will stop working and earning income from employment or self-employment. You may also stop contributing to other retirement accounts, such as a pension plan, a 401(k) plan, an IRA, or a Roth IRA.
If you retire before your full retirement age and start collecting Social Security benefits, you may be subject to the earnings test. The earnings test is a rule that limits how much income you can earn from work without affecting your Social Security benefit. The earnings test applies only to income from work, not from other sources, such as investments, pensions, or annuities.
The earnings test has different limits depending on your age and the year. For example, in 2023, the earnings test limits are:
- $19,560 per year ($1,630 per month) if you are under your full retirement age for the entire year
- $51,960 per year ($4,330 per month) if you reach your full retirement age in 2023
If you earn more than the limit, your Social Security benefit will be reduced by $1 for every $2 that you earn above the limit if you are under your full retirement age for the entire year, or by $1 for every $3 that you earn above the limit in the months before you reach your full retirement age.
The earnings test does not apply if you are at or above your full retirement age. You can earn as much as you want from work without affecting your Social Security benefit.
Take Social Security
If you take Social Security, you will start receiving monthly payments from the Social Security Administration (SSA) based on your work history and earnings. You can choose to take Social Security as early as age 62 or as late as age 70. However, the age at which you take Social Security will affect the amount of your monthly benefit.
If you take Social Security before your full retirement age, your benefit will be reduced by a certain percentage for each month that you claim early. If you take Social Security after your full retirement age, your benefit will be increased by a certain percentage for each month that you delay claiming until age 70.
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FAQS
How much money will I lose if I retire at 62 instead of 65?
If you choose to retire at 62 instead of waiting until your full retirement age, your monthly benefits will be reduced. The exact amount depends on your specific situation, but generally, you can expect a reduction in your monthly retirement benefits by about 25%.
What does it mean to claim Social Security?
When you claim Social Security, it means that you are applying to begin receiving your retirement benefits from the Social Security Administration. It is essentially the process of activating your Social Security retirement benefits.
What is the monthly benefit I can receive if I retire at 62?
A: The monthly benefit you can receive if you retire at 62 will depend on your lifetime earnings and the number of credits you have accumulated. On average, if you retire at 62, you can expect to receive about 70% of your full retirement benefit amount.
What is the difference between retiring at 62 and being a retiree?
Retiring at 62 refers to the act of stopping work and beginning to receive early retirement benefits at the age of 62. A retiree, on the other hand, is a person who has already retired and is no longer working.
What are lifetime benefits?
Lifetime benefits refer to the total amount you will receive in Social Security retirement income over the course of your lifetime. It takes into account the monthly benefits you receive, the number of years you receive them, and any adjustments due to early or delayed retirement.
Should I file early for Social Security benefits?
The decision to file early for Social Security benefits ultimately depends on your personal financial situation. While doing so will result in a reduction in your monthly benefits, it may be a necessary step if you need the income to support yourself in retirement.
Should I wait to claim Social Security?
A: Waiting to claim Social Security can be a smart financial move for some individuals. By delaying your retirement benefits, you can increase the monthly amount you receive through the delayed retirement credit. However, the decision to wait should be based on your individual circumstances and goals.
Can I collect Social Security if I retire at 62?
Yes, you can collect Social Security retirement benefits if you retire at 62. However, it is important to note that your monthly benefits will be reduced compared to if you had waited until your full retirement age.
How much is the reduction in monthly benefits if I retire at 62?
If you retire at 62, you can expect a reduction in your monthly benefits by about 25%. This reduction is permanent and will continue throughout your retirement. It is important to consider this when deciding the best age to claim Social Security.
How does life expectancy affect Social Security benefits at 62?
Life expectancy is an important factor to consider when deciding to claim Social Security benefits at 62. If you anticipate living longer than average, it might be more beneficial to delay your retirement and receive higher monthly benefits. On the other hand, if you have concerns about your health or family history, claiming benefits earlier may be a better choice.
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