The idea of Early Retirement is a dream for many workers in different sectors. But beneath that premature freedom lies a complex mathematical calculation.  This can drastically alter financial security for the rest of one’s life.

When you take out the calculator to do the math, this type of retirement can reveal another reality that is not pleasant at all. A permanent financial cut that can compromise your quality of life in old age can affect you. At CredHelper, we tell you all about it.

Retiring Early Sounds Great — Until You Run the Numbers

At the age of 62, the idea of Early Retirement began for the first time.  Retirement from work is no longer a general idea, but has become a real possibility for any worker. Claiming benefits at this age sounds like a blast, but it can mean a financial loss for you.

The truth is, deciding when to claim Social Security benefits is one of the most important financial decisions you’ll make at this stage. Even if it is the minimum age to start receiving money, it does not mean that it is the most convenient.

For the Social Security Administration, retirement is set at an age between 66 and 67 years. Any application for benefits before reaching that age is considered anticipated. This has several consequences.

• Receive smaller checks over a more extended period of time.
• Permanent reduction in your monthly benefit. If you start earlier, you receive less to make up for the extra years of payments.
• Permanent monthly economic loss, that is, the figure does not magically increase when you turn 67; everything remains the same.

Retiring at age 62 offers the benefit of enjoying it longer, but at a very high financial price. The reduction in your monthly check is noticeable, and there is also the possibility of a withholding of benefits if you continue to work. In addition, you will have less economic support for your spouse.

Social Security Early Retirement: How Much You Actually Lose

The permanent reduction of your benefits if you retire before the age established by law is evident. Social Security’s logic is that if you retire earlier, you receive less money to make up for the extra years of payments.

Clearly, if your full retirement age is 67 and you decide to retire early, your monthly benefit will be reduced by approximately 30%. Mathematics does not lie, and the formula in this case is strict.

Benefits are reduced by 5/9 of 1% for each month of anticipation until 36 months have elapsed. Then, 5/12 of 1% for each additional month of life. For example, if your benefit at age 67 would be $2,000 per month, when you claim earlier, you will receive only $1,400.

This difference of $600 per month of insurance does not seem important at first, but after a while, you will stop receiving a lot of money. This can affect your well-being and lifestyle in the long run in your Early Retirement.

Why Some People Still Choose 62

Even though retiring at age 62 in the United States implies a significant reduction in monthly benefits, many people still choose this option. This is due to different factors that go beyond the economic.

• Emergencies in health and physical capacity. For many workers, this age is the limit of their abilities. In cases of one’s own health problems, caring for family members, and physically demanding jobs, retirement is not a luxury, but a necessary outlet.
• Job insecurity. The labor market is not always friendly to older workers; unjustified layoffs due to age occur, or voluntary retirement packages are offered. In these cases, Social Security becomes your lifeline.
• The philosophy or popular saying that a bird in the hand is better than a bird in the bush. Many retirees would rather have less money right now than risk not enjoying it in the future, either for reasons of life expectancy or because they want to enjoy it immediately while in good health.

There are also strategic and financial reasons for this type of retirement.  Although it may seem contradictory, for some people it is an economic movement, either for a break-even point or for investment reasons.

Some withdraw money at the age of 62 to invest it on their own. With this strategy, they seek to obtain a higher return than that offered by Social Security.

The Break-Even Age Explained Simply

The break-even age in Early Retirement is the point at which the total payments received for retiring early will compensate you for the financial reduction you will have. That is, to find this point, you must look at the advantage of retiring at 62 and the advantage of retiring at 67.

The person who withdraws early will receive quick checks of small sums, with a reduction of up to 30%. On the other hand, the one who waits does not receive anything during those 5 years, but receives checks with higher amounts. To find this point, we must look at the advantage that both cases have.

During the 60 months of waiting, the retiree has already accumulated thousands of dollars in his bank account. When the 67-year-old retiree receives his first check, he will have larger sums. 77 and 80 years are considered the breakeven age.

At this point, both have received precisely the same amount of money from Social Security. In short, if you trust that you will live longer, you should wait. If you think your life expectancy is lower, rejuvenate earlier. Each case is different and depends on your personal reality.

Tools to Compare Early, Full, and Delayed Retirement

The truth is that making the decision of when to retire is a matter of looking at health, time, and safety. Fortunately, today there are tools designed to help you in this process.

In CredHelp, you will find the most authentic, valuable tools to compare your most favorable options, whether Early Retirement, full, or deferred.

• SSA Retirement Calculator. The SSA offers a public calculator to understand the percentage impact of your decision. With your date of birth and current salary, you’ll be able to know how much the benefit reduction is for each month you advance and how much it can increase if you wait.
• AARP Social Security Calculator. AARP Social offers user-friendly tools with less technical explanation. Compare scenarios based on questions about your lifestyle and marital status. Explain how the extra income can affect your benefits if you retire early.
• Fidelity Retirement Planner. Fidelity is designed to help you plan, analyze, and evaluate your retirement readiness. The tool allows you to enter data such as current savings, investments, and income to determine the correct retirement date.

When using these digital tools, note that you should focus only on the amount of the monthly check you will receive. Here you will get real data based on savings, longevity, current salary, and life expectancy, but you decide what is best.

Considerations before taking the step

Before deciding anything regarding your Early Retirement, it is necessary to consider what will affect the figure.

Analyze your current health; if you have medical conditions that suggest a short life expectancy, it is best to claim retirement at 62. Take into account the private savings you have; if the figure is high enough to compensate for the percentage you will lose.

Also, remember that Medicare doesn’t start until age 65. If you retire early, you’ll have to pay for private insurance for three years, which can be extremely expensive. This is a very personal decision that caters only to your needs.

You can also find the best apps to prepare financially; this way, you would make a good decision for your future.