7 Social Security Strategies You Must Use If You Retire Early
Written by
Cynthia Measom
Edited by
Carly Brashears
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
If you’re planning to retire early, you might be counting on your Social Security retirement benefits to help cover your expenses. The earliest you can claim your benefits is age 62, which is before your full retirement age of 66 or 67, depending on what year you were born. Retiring before your full retirement age will result in a reduction of benefits.
Additionally, if you retire and quit earning income altogether before you turn 62, you’ll rack up time with no earnings, which may also lower your overall Social Security benefit.
GOBankingRates asked a financial expert to offer some tips. Here are his best ways for early retirees to make the most of their Social Security benefits.
Supplement Your Retirement Savings
Tyler Meyer, CFP(r), owner of QED Wealth Solutions and founder of Retire to Abundance, said to use Social Security benefits to supplement retirement savings and investment income.
“This can help cover essential expenses and provide additional financial security throughout retirement,” he said.
Create a Budget
Meyer also suggested developing a comprehensive budget that outlines your anticipated expenses and income sources, including Social Security benefits.
“This will help you allocate funds effectively and ensure that your retirement income meets your financial needs and goals,” he explained.
Consider Tax Implications
“Be mindful of the tax implications of Social Security benefits and plan accordingly,” said Meyer. “Depending on your overall income and filing status, a portion of your benefits may be subject to federal income tax. Understanding these tax implications can help you minimize tax liability and optimize your retirement income strategy.”
Manage Withdrawal Strategies
Meyer’s next suggestion was to coordinate Social Security benefits with other retirement accounts, such as 401(k)s or IRAs, to create tax-efficient withdrawal strategies. “By strategically timing withdrawals from different accounts, you can minimize taxes and maximize the longevity of your retirement savings,” he said.
Adjust Lifestyle as Needed
Meyer also recommended being prepared to adjust your lifestyle and spending habits based on your Social Security income and other financial resources.
“Prioritize essential expenses while considering discretionary spending and lifestyle choices that align with your retirement income,” he said.
Explore Additional Income Sources
Another important strategy is to supplement your Social Security benefits with additional income sources.
“Explore opportunities to generate additional income streams, such as part-time work, freelance gigs or rental income,” he said. “Supplementing Social Security benefits with additional income can provide financial flexibility and enhance your overall retirement lifestyle.”
Plan for Healthcare Costs
Meyer said it’s also important to factor in your healthcare expenses when budgeting for retirement because healthcare costs tend to increase with age.
“Consider enrolling in Medicare at age 65, and explore supplemental insurance options to help cover out-of-pocket medical expenses not covered by Medicare,” he said.
What To Consider Before Claiming Security Benefits Early
Even though you may be depending on your Social Security income to allow you to retire early, there are some things to consider first.
Try To Maximize Your Benefit If Possible
David Globke, RICP and vice president of SFA Wealth Management, said that Social Security is like a federally protected pension benefit.
“Just like any other pension, your benefit amount is determined by how much money you put into the system, when you choose to claim your benefits and how long you receive those benefits over your lifetime,” he said. “All of these factors can make Social Security decisions complex, which is why it’s important to create a proactive claiming strategy that helps maximize your benefit amount.
“Remember to consider your other retirement savings buckets when deciding when to turn on your Social Security benefits because that may impact whether or not you need to turn on your benefits early.”
Expect a Permanent Reduction in Payments
Globke said that if you choose to take your Social Security income early, you will be paid at a significant discount compared to if you wait until you are older.
“Retirees born between 1943 and 1954 have a full retirement age of 66,” he said. “Activating an early retirement benefit at age 62 can cause a permanent reduction of your monthly payments by approximately 25% — a reduction that lasts for life. For individuals who live longer than they may have anticipated, this can result in a lot of lost income over their lifetime.”
Be Aware of Earning Limits
“If you turn on Social Security benefits early and plan to keep working part-time while in retirement, keep in mind that there are earning limits,” Globke said. “An annual earnings test applies to any retiree receiving a benefit below the normal retirement age (NRA). For 2024, Social Security caps your earned income at $22,320. For every $2 you earn over that cap, Social Security will withhold $1 in benefits. This can significantly erode the value of claiming early for some. Once you reach NRA, the earned income cap becomes more generous at $59,250.”
More From GOBankingRates
