When Should I Retire?

You don't have to wait until you are 65 to retire. But if you retire early, you will get less than your full retirement benefits from Social Security. Is that your best option?

Full Retirement Age

The usual retirement age for people retiring now is age 65. Social Security calls this "full retirement age," and the benefit amount that is payable is considered the full retirement benefit.  Because of longer life expectancies, the full retirement age will be increased in gradual steps until it reaches age 67.  This change starts in the year 2003, and it affects people born in 1938 and later.

Early Retirement

You can start your Social Security benefits as early as age 62, but the benefit amount you receive will be less than your full retirement benefit.

If you take early retirement, your benefits will be permanently reduced based on the number of months you will receive checks before you reach full retirement age.  If your full retirement age is 65, the reduction for starting your Social Security at age 62 is about 20 percent; at age 63, it is about 13 and 1/3 percent; and at age 64, it is about 6 and 2/3 percent.

If your full retirement age is older that 65 (that is, you were born after 1937), you still will be able to take your retirement benefits at age 62, but the reduction in your benefit amount will be greater that it is for people retiring now.  Here's how is works. If your full retirement age is 67, the reduction for starting your benefits at 62 is about 30 percent; at age 63, it's about 25 percent; at age 64, about 20 percent; at age 65, about 13 and 1/3 percent; and at age 66, about 6 and 2/3 percent.

As a general rule, early retirement will give you about the same total Social Security benefits over your lifetime, but in smaller amounts to take into account the longer period you will receive them.

Some people stop working before they reach age 62.  In that case, it's important to remember that during years with no earnings, you miss the opportunity to increase your benefit amount by replacing lower earnings years with higher earnings years.

The Social Security Administration will provide you with a personalized benefits estimate (call 800-772-1213, or visit www.ssa.gov).  If you're covered by a traditional pension plan at work, the plan administrator can tell you what to expect under any number of options you might choose. Subtract the amount of social security and pension benefits you'll receive from the amount you estimate you'll need in the first year of retirement.  The result is the amount you'll need to save from the other sources to cover each year of retirement.