Making decisions about Social Security in the United States is not just a matter of paperwork: it can make a significant financial difference in the life of any citizen. One of the most common mistakes is to apply for payment early without considering the long-term consequences. Although the idea of retiring as soon as possible is appealing to many, doing so prematurely can mean a significant loss in monthly benefits.
For years, the Social Security Administration has allowed citizens to apply for retirement starting at age 62. However, this is considered “early retirement” and, as such, comes with a penalty that lasts for the beneficiary’s entire life. That’s why more and more people are choosing to wait until full retirement age, or even beyond, in order to get higher checks.
Planning is key. Taking into account projected income, years of contributions, and health status can help you make a more informed decision and avoid unnecessary cuts. Here’s how much you could lose if you decide to retire early, and how you can maximize your benefits if you still have time to wait.
How much do I lose from Social Security with the ERA?
The concept of Early Retirement Age (ERA) refers to the possibility of applying for retirement payments at age 62. While this option may seem attractive to those who want to stop working as soon as possible, it involves a significant reduction in the monthly amount.
The penalty for retiring early can be up to 30% of the total amount you would be entitled to if you waited until your full retirement age (FRA). This means that if your full benefit would be $1,400, you could get only about $980 per month if you retire at age 62.
Furthermore, this reduction is permanent. It is not adjusted when you reach full age or when you turn 70. That is why it is essential to analyze your personal situation before making such an important decision. Consulting with an advisor or using the tools offered by the Administration itself can make all the difference.
Maximizing Social Security can be an easy task
Although many people resign themselves to collecting less than they could, the truth is that maximizing your Social Security benefits is entirely possible, even with relatively simple decisions. The first and most obvious step is to wait until you reach full retirement age, which is currently between 66 and 67, depending on your year of birth.
If you also decide to delay collection beyond that age, you can get an 8% annual increase until age 70. This translates into significantly higher checks and can be key to maintaining a good quality of life in retirement.
Another key factor is to work for at least 35 years, as your benefit is calculated based on your 35 highest-earning years. The more years you work and the better you are paid, the higher your calculation base will be. Therefore, in many cases, it is worth staying in the labor market a little longer if it means securing a more solid monthly income for the rest of your life.
