Q. I am taking early retirement at age 52. I wasn’t going to take Social Security until I have to, hopefully at age 70. Will my benefit be lower because I retire early? Or how will it grow between now and then?
– Still works
A. Congratulations on your early retirement.
These are excellent questions to ponder, especially when you retire at such a young age.
If you’re retiring young, there are some potential trade-offs you should be willing to make, said Michael Cohen, a retirement specialist at Security Pension Advisors in Belvidere.
He said the biggest concern is usually health care.
Medicare doesn’t start until age 65, so you’re responsible for health insurance unless you have other circumstances, he said.
Now let’s take a look at how Social Security works.
The earliest age you can collect is 62. Your current full retirement age in Social Security terms is 67, Cohen said, and the longest you can wait to collect is 70.
Don’t make the mistake of waiting after age 70 because it won’t benefit you, he said.
You can contact Social Security to see your estimated benefits.
It shows the amount you are expected to receive at age 67, or your full retirement age, and it also shows estimated benefits at age 62 and 70.
“If you wait until age 70, you earn 8% simple interest per year on your payment for each year you wait, meaning you can increase your monthly benefit by 24% by waiting until age 70. said Cohen.
Now let’s take a look at how your early retirement comes into play.
Social Security determines your benefit amount by looking back at your work history.
“They look at your top 35 years of income and then adjust those numbers for inflation to determine what your benefit will be,” he said. “There’s a complex mathematical formula that the government uses here to determine your primary insurance amount or full retirement age.”
Go to www.SSA.gov and create an online account to view your statement, which includes estimated benefits and your employment history, as long as you have a valid Social Security Number.
The numbers you find on your statement are estimates and are subject to change, he said.
Because you no longer earn between 52 and when you collect, your estimated Social Security benefit will almost certainly decrease over time, Cohen said. That’s because the estimated benefits on your statement are made with the assumption that you’ll continue to work until age 62, 67, or 70 and earn a similar income as the previous year.
If you stop working at 52, all that changes because you no longer contribute to Social Security.
Cohens said it will be difficult to determine today what your benefit will be at age 67 or 70 for several reasons.
“Your early retirement is a big factor, but along with that there will definitely be changes in Social Security,” he said.
Indeed, your statement reads: “Your estimated benefits are based on current legislation. Congress has made changes to the law in the past and may do so at any time. The benefit level law may change because by 2035 the payroll taxes collected will be enough to pay only about 79 percent of the planned benefits.”
What does this mean for your benefit?
“It means you should expect changes before or around the time you consider collecting,” he said.
Cohen said the government is unlikely to cut benefits nationwide by 21%, but other measures are more likely.
For example, it may change when full retirement age kicks in, Cohen said. It used to be 65, then it turned 66, and now, for anyone born in 1960 or later, the full retirement age is 67, he said.
It could raise payroll taxes, which are currently 6.2% for W-2 employees and 12.4% for the self-employed.
It could cut the 8% simple-rate credit to a lower number or eliminate cost-of-living adjustments each year, he said.
“The point is they have a lot of options and they’re going to have to act because Social Security isn’t going anywhere,” he said. “All of these factors make determining your future benefits quite difficult when there is such a large gap of potentially 18 years between your retirement date and when you start collecting.”
Mail your questions to [email protected].
Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com‘s weekly e-newsletter.