What You Need To Know About Social Security If You Plan To Retire Early

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The Financial Independence Retire Early movement, typically referred to by its acronym FIRE, has been a popular discussion for the past few years. After all, who wouldn’t want to be financially independent, to the point where early retirement was a viable option? But like any financial decision, there are various consequences that may be overlooked. When it comes to retiring early, one of those repercussions is the effect it may have on your Social Security benefits. Here’s a look at some of the things to consider regarding your Social Security if you’re considering retiring early.

Find Out: Jaw-Dropping Stats About the State of Retirement in America
See: The Average Retirement Age in Every State

It Might Be a Long Wait Before You Get Any Benefits

One of the main problems with FIRE is that it puts a large distance between a worker and Social Security retirement benefits. For example, if you retire at age 40, you’ve got at least 22 years until you can start claiming Social Security retirement benefits, and your full retirement age is an even greater 27 years away. While you may not be depending on Social Security to fund your retirement, that’s a long time to wait if you find yourself falling short with your savings. It’s also a long time to expect the nest egg you’ve built at age 40 to last without some type of supplemental income. 

Retire Comfortably

Related: 35 Retirement Mistakes People Make

Although you may have done the math and decided that your early retirement nest egg is enough to last your entire life, there are decades of uncertainty in those projections before you reach your government-supplied lifeline. A few large unexpected expenses, such as medical bills, home improvements or lawsuits, could be enough to derail your plan.

You Might Permanently Reduce Your Benefits

Your Social Security benefits are based on a calculation that incorporates your 35 top earning years as a worker. If you retire at age 40, for example, you won’t have 35 years of income to report to the Social Security Administration. This means your retirement benefits formula will incorporate a number of years of zero earnings. The result is that retiring early, before what are most people’s peak earnings years, will no doubt result in smaller Social Security retirement benefits for you. In many cases, this reduction could amount to $1,000 per month or more.

The Social Security Fund May Not Be What You’re Expecting

It’s no secret that the Social Security fund has some long-term structural problems that may reduce future payments. There’s no way around the fact that people are living longer, and the workforce to sustain payouts for older Americans simply can’t keep up. Depending on what legislation Congress enacts over the coming decades, the Social Security fund may become fully funded once again, or it may remain on its current path toward depletion. 

Current projections show that the Social Security trust fund will be completely tapped out by 2033. While this doesn’t mean Social Security will end, it does mean that payouts will have to be matched to incoming tax revenue, rather than being supplemented from the trust fund. Thus, by 2033, expectations are that Social Security benefits will have to be cut by 24%. This is an important area to watch if you’re retiring early and counting on Social Security to help fund your golden years. 

Retire Comfortably

Ways To Boost Your Social Security Payout

Fortunately, if you are on the path to retire early, it means you’ll have plenty of time to make adjustments to your retirement savings plan to ensure you maximize your Social Security benefits. 

One option is to defer claiming Social Security until at least your full retirement age, which for most current workers is age 67. If you can hold off claiming benefits until you’re 70, your benefits will increase even more, to the tune of 8% per year for those born in 1943 or later.

Another way to increase your ultimate Social Security retirement benefit is to work longer. Even though you’re “retired early,” there’s nothing wrong with doing some part-time work in a field you love. Not only will you improve your lifelong cash flow, you’ll continue to increase your Social Security retirement benefit. Even a small amount of income is better in terms of accumulating retirement benefits than posting years and years of zero income in your earnings record. 

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Last updated: Oct. 21, 2021 

About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.

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