How to Decide Between Early Retirement and Waiting for Full Social Security Benefits

Many of us occasionally (or often) dream of retiring early — to spend more time doing things we love, such as reading, golfing, gardening, or traveling. It’s a great dream, but not everyone should pursue it.

Here’s a look at how you might decide whether you should retire early — or whether you might want to delay until you can collect your full Social Security benefits.

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Social Security and your retirement

It’s important to think about Social Security when considering retiring early, because when you claim your benefits affects how much you receive — each month and in total. And sadly, the earlier you claim them, the less money you may receive.

We can start collecting our Social Security benefits as early as age 62, or we can delay doing so — up to age 70. (Delaying beyond age 70 offers no benefit.) The table below shows the percentage of your full benefits you’ll receive at each starting age:

Data source: Social Security Administration.

For most people, waiting until age 70 is the best strategy. But it could make good sense to claim much earlier if:

• You simply need the money.
• Your life expectancy is below average.
• You want to retire early and can afford to do so.

Keep in mind that the bigger your benefit, the bigger cost-of-living adjustments (COLAs) you’ll receive, too.

Are you ready to retire early?

As you think about whether you can retire early, here are some key considerations:

• Do you have a comprehensive retirement plan that covers how much income you expect to need in the years ahead and how you’ll get it? Does it show that you will have ample income? Be sure to estimate conservatively, because some expenses may end up higher than you expected.
• What’s your healthcare plan? Medicare is available beginning at age 65. If you’re retiring earlier than that, be sure you have a way to be covered. That could be by using the COBRA (Consolidated Omnibus Budget Reconciliation Act) coverage available for 18 months (and sometimes longer) once you leave a job, tapping the Affordable Care Act marketplace, or perhaps using your working spouse’s coverage from their job. Until age 65, healthcare coverage may cost you a lot, so plan for it.
• Think about long-term care, too, as that’s generally not part of a health insurance policy, and it will cost some people a lot in retirement.
• Are you carrying a lot of debt? It may be best to enter retirement with your mortgage paid off, but if it’s not, make sure your payments are manageable. If you’re carrying high-interest rate credit card debt, it’s really best to pay that off completely as soon as possible, lest it grow even bigger.
• What’s your Social Security plan? If you can retire early while delaying claiming your benefits until age 70 or close to it, that might be best. If you need to claim your benefits early, make sure you’ll be OK with those smaller checks.

Retiring early can turn out wonderfully — or it can disappoint. Be sure to decide carefully.

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