Do I Retire Early with Social Security Benefits or Wait Until Full Retirement Age?

Do I retire early with social security benefits or wait until full benefit (normal) retirement age? This is a question asked frequently, and is not a simple math equation of 2 + 2 = 4. Early retirement is defined as age 62 to 67, depending upon your birth date. If a retiree selects early retirement, they will receive a smaller monthly benefit as opposed to waiting until normal retirement age.

The answer is not strictly financial, but is dependent upon a wide range of concerns and variables that will be determined based on an individual’s circumstances.

The First Concern Is Need.

Is the monthly benefit mandatory to cover your financial obligations?

If so, then start your benefits immediately and the issue is resolved.

Do you have dependents under age 19 or disabled?

This could be a consideration as they may be eligible for benefits if you are also receiving benefits.

The Second Concern Is Health.

If your health and family longevity history is subpar, then you might consider early retirement.

Some examples show it could take twelve years to reach the break-even point where the larger normal retirement (age 65 to 67 depending on your birth date) benefit payments are equal to the sum of the early retirement payments. This would require a person waiting until 67 to take normal retirement benefits to live to at least age 79 to breakeven on benefits paid.

Some sources, including the Social Security Administration state: “If one lives to your actuarially expected life expectancy for your age, the lifetime total benefits will be about the same as whether one receives benefits early at age 62, full retirement age, or age 70”. Obviously, the monthly benefit amounts will be less if early retirement is chosen.


1. Life Expectancy And Health

The current state of an individual’s health and their genetic make-up (expected longevity) are important issues. Some well-known financial advisors believe in waiting until full retirement age for drawing benefits. If your life expectancy is 80, based upon actuarial tables, personal health and family longevity, then waiting until full retirement age would be wise.

2. Spousal Issues

If spousal benefits are based upon your work record, they will be negatively affected by early retirement and by excess earned income.

Spouses without a personal earnings record or 40 quarters of social security wages or self-employment earnings will be reliant upon the working spouse’s retirement benefits and eligible for 50% of such.

There is no reduction in benefits for spouse early retirement in certain cases. A retiring spouse claiming spousal benefits will receive 50% of the working spouse benefit upon reaching the age of 62. Another seldom used qualification is for a spouse of any age and caring for the 16 year or under (or disabled) natural child of both, and married for one year before benefits.

3. Shortened Retirement Period

Obviously, retirement years are shortened if one continues to work as the retirement age approaches the life expectancy age. For example, if your life expectancy is age 86, and you work until age 68, there is an 18 year retirement period to fund, which is less than if one retired at 62, leaving a 24 year retirement period for funding. In addition, some workers are at their highest lifetime earnings in this time period, increasing their peak years of the 35 year social security earnings calculation.

4. Indexed Inflation Adjustment and Credit for Delay of Benefits

Social security benefits receive an annual compounded inflation adjustment which will not be credited if one retires early with a smaller benefit.

Workers that delay their retirement earn a credit each year until age 70 (maximum delayed retirement) which increases their benefit. A worker born in 1953 or later receives a credit of 8% per year if retirement benefits are delayed until age 70.

5. Early Retirement Benefit Reduction Is Possible If One Earns Excess Amounts

Some individuals want to keep their business or job as an important part of their physiological enrichment. Clients considering early retirement benefits but intending to keep working will be surprised that benefits are reduced for years prior to full retirement age by as much as $1 for every $2 in earnings above the “exempt” amount.

When benefits are reduced because of excess earnings, taxpayers sometimes have to repay amounts they previously received.

Individuals receiving an early retirement benefit and not attaining normal retirement age until after 2012 are subject to an annual earnings limitation in the amount of $14,640. If your earnings exceed the limitation, $1 in benefits is withheld for every $2 of earrings that exceed the threshold amount. The annual earnings exempt amount is $38,880 for individuals that reach normal retirement age during 2012. In this scenario, $1 of benefits is withheld for every $3 of earrings in excess of the exempt amount. It is important to note the benefits will be increased when one does reach full retirement age so one gets credit for months they did not receive a benefit. As you can see, excess earned income can reduce our social security benefit significantly.

Many taxpayers decide that the combination of reduced benefits from early retirement in combination with benefit reductions from earnings exceeding the exempt amount is very discouraging and this leads them to defer until normal retirement age.

For example; assume a client retiring before full retirement age, with a 25% tax bracket and 85% of social security benefits included in gross income. The client earns wages exceeding the exempt amount and only realizes additional cash of $280 for each $1,000 earned over the exempt amount! This example illustrates the tax on social security and the loss of ½ of social security benefits for years prior to full retirement age.

Excess earnings also affect the benefits received by all family members based on your earnings record, such as spouse or dependent child benefits.

There is no reduction in social security benefits for earned income (exceeding the exempt amount) in the month the person attains the normal retirement age 65 to 67 (depends upon year of birth).

6. Increasing Future Benefits Due To Higher Wage Years.

Additional earnings after retirement will be explored by the Social Security Administration in case it is one of the highest earning years of the 35 year period utilized for purposes of calculating your monthly benefit. It might replace a lower earning year as earnings after retirement can increase, but will not decrease the benefits.

7. Taxation Of Social Security Benefits

Up to 85% of social security benefits (paid because of retirement, survivorship, or disability) are taxable. The amount of benefits includable in income depends on the taxpayer's filing status, adjusted gross modified (provisional income) with certain inclusions, including half of the social security benefits.

None of the taxpayer's social security benefits are included in income if provisional income does not exceed the following base amounts [IRC Sec. 86(c) (1)]:

1. $25,000, if single, head of household, qualifying widow, or married but filing a separate return and the taxpayer did not live with spouse at any time during the year.

2. $32,000, if married filing a joint return.

3. Zero, if married but filing a separate return and the taxpayer lived with spouse at any time during the year.

Many state taxing authorities do not impose a tax on social security income.

Clients expecting lower income in future years may see less of their social security benefits subject to tax and may wish to delay social security benefits.


Medicare signup should begin three months before reaching age 65, otherwise Medicare insurance and prescription drug coverage could be delayed and higher premiums could be charged.


If you or your dependents don’t need the income now, and your personal health and family longevity are good, then you should consider delaying social security benefits and choosing the normal retirement age.

Individuals that will continue their business or job should consider delaying social security benefits until the normal retirement age to avoid benefit reduction caused by excess earnings.

Bottom line is that it’s not as cut and dried as many people think and must be decided by each individual based on their facts and circumstances.