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SOCIAL SECURITY

What is the Social Security early retirement penalty chart for 2023?

You can begin to claim Social Security retirement benefits when you are 62, but doing so comes at a cost to the amount that you can receive each month.

Update:
Social Security announces 2024 COLA. How much will your benefits increase?

There are many considerations that one should take into account when thinking about when to begin to claim Social Security benefits once you’ve become eligible. While it is possible to start once you’ve reached the minimum age of 62, it can come at a cost in the form of longer term reduced earnings.

Before being tempted to quit the nine-to-five, you may want to first take a look at what your monthly payments will be depending on when would be best for you to begin collecting on your retirement fund you’ve work hard to accumulate. 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. Here we have a look at what the penalty is for doing so before reaching the full retirement age.

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 1961 will be turning 62 sometime during this 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, 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.