What is the Social Security early retirement penalty chart?
There is a penalty for early retirement since the amount you’ve accumulated for your Social Security fund over your career is expected to last longer.
For those fed up with the grind of the nine-to-five and nearing retirement age, it might be tempting to take advantage of the fund they’ve built up through Social Security at the first possible opportunity. However, retiring before full retirement age will result in lower monthly payments than you would otherwise receive.
To help Americans plan for when the best time for them to retire is, the Social Security Administration provides an early retirement penalty chart. That way you can calculate whether or not it is worth giving up your regular paycheck and live off your retirement account and savings.
Early retirement could knock 30 percent off your monthly payments
The earliest a person can retire is age 62, plus one month as you have to be 62 throughout the first month of retirement. However, workers are penalized for not waiting until they reach full retirement age and are rewarded for claiming benefits even later than that threshold. In order to receive the maximum monthly retirement benefit amount from the Social Security Administration, a worker needs to wait until they are 70 to begin receiving benefits.
In 1983, legislation was passed to strengthen the financing of the Social Security program and guarantee the solvency of the trust funds that were facing an imminent cash crunch. As part of the changes, a gradual increase in the full retirement age was implemented going from 65 to 67. Those who were born in 1960, and after, won’t reach full retirement age until they are 67 for a full month.
Those who were born in 1960 will be turning 62 sometime during the next year. But they, and those born in subsequent years, will face the highest penalty for retiring at the minimum age when benefits can be claimed. If they begin receiving monthly Social Security payments the first month they are able to next year, they will suffer a permanent 30 percent reduction in the amount of their monthly checks.
How to calculate the Social Security early retirement penalty
The Social Security Administration has a calculation for just how much your monthly Social Security payments will be permanently reduced from the primary insurance amount accumulated over the years you contributed depending on just how early you retire.
During the first 36 months, for every month that a beneficiary signs up to receive Social Security prior to full retirement age the primary insurance amount will be reduced by 5/9 of 1 percent, or around 0.55 percent. For each additional month beyond 36 months, the reduction is 5/12 of one percent, or a little less than 0.42 percent.
A person who was born in 1960 or later and that retires at 62 in the first month they eligible to begin receiving Social Security benefits will be 60 months short of full retirement age. That translates to a 30 percent permanent reduction to compensate for the extended number of months it is expected they’ll be collecting monthly payments.