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The Pros and Cons of Retiring Early…

The Pros and Cons of Retiring Early…

October 03, 2023

Early retirement is so appealing… Spending quality time with the grandchildren, traveling the world, buying a vacation home for family gatherings, all while you’re young and healthy enough to enjoy it.

Retirement at any age is a significant milestone, and being able to retire early can be a reward for disciplined saving and investment, however, it still requires careful planning.

One aspect to consider is the impact of income limits on social security benefits for those not yet at full retirement age.

The idea of enjoying early retirement and receiving Social Security benefits may seem appealing, however, it's important to understand how income limitations can affect your overall financial picture.   

Early Retirement and Social Security Eligibility: To qualify for Social Security benefits, you need to accumulate enough credits by working and paying Social Security taxes. The earliest age at which you can claim Social Security retirement benefits is 62.

However, it's essential to note that claiming benefits before reaching full retirement age (FRA) results in a reduction in the monthly benefit amount. Your FRA depends on your birth year and ranges between 66 and 67.

Understanding Income Limits: If you decide to retire early and start collecting Social Security benefits before reaching your FRA, be aware of the income limits imposed by the Social Security Administration (SSA). These limits determine how much you can earn from work without affecting your Social Security benefits. For 2023, the income limit is $18,960 per year or $1,580 per month.

Impact of Exceeding Income Limits: If your earnings exceed the income limits while collecting Social Security benefits before your FRA, your benefits may be subject to the Social Security earnings test. Under this test, $1 in benefits will be withheld for every $2 earned above the limit. It's important to note that these withheld benefits are not lost permanently but will be recalculated and added back to your monthly benefits once you reach your FRA.

Strategies for Maximizing Retirement Income: To optimize your retirement income while retiring early and collecting Social Security benefits, you may want to consider the following strategies:

By delaying the start of your Social Security benefits until reaching your FRA or beyond, you can increase your monthly benefit amount. This can help offset any reductions caused by early retirement and potentially reduce the impact of income limits.

And, in addition, you will want to carefully manage and evaluate your sources of income, including pensions, investments, and part-time work, to ensure they don't exceed the income limits. Proper income management can help you avoid or minimize the Social Security earnings test.

Seek professional advice: Retiring early and collecting Social Security benefits can be an attractive option when you’re seeking financial independence and more leisure time. However, understanding the income limits associated with early retirement is crucial for making informed decisions.

Consulting with your One Financial Services advisor can provide valuable insights tailored to your specific situation. Our team can help you create a comprehensive retirement plan that considers income limits, tax implications, and other factors to optimize your overall retirement income strategy.

We think of our One Financial Services clients as family, and as family we are here to help you plan for a financially secure and fulfilling future.