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How Early Retirement Impacts Social Security Benefits


How Early Retirement Impacts Social Security BenefitsI originally wrote this piece in 2012 to figure out how early retirement impacts Social Security benefits. A lot has happened since then. I retired from my engineering career to become a stay-at-home dad/blogger. My income dropped quite a bit, but my happiness increased tremendously. After 6 years, I’m very happy that I retired early and I haven’t regretted it yet. Fortunately, I’m having some success with blogging. Last year, Retire by 40 generated $65,388 in revenue. That’s more than I ever imagined when I started this blog.

While last year was a banner year for Retire by 40, my self-employment income fluctuated wildly over the last 6 years. This means my Social Security estimated benefits also changed from year to year. The estimated benefits assume you’ll make a similar amount of income until you retire, which isn’t the case for me. My estimated benefits ranged from $2,100/month to $2,500/month. This is exactly why I wrote this post. I wanted to get a more accurate estimation and see how early retirement changes your benefits. Okay, we’ll quickly review how the Social Security benefit is calculated. Then we’ll go through 3 scenarios to see how early retirement impacts my Social Security Benefits.

Social Security recap

In the United States, Social Security is the Old-age, Survivors, and Disability Insurance (OASDI) federal program. Social Security is funded through payroll taxes and is meant to be a safety net for all qualified workers. We’ll focus on the “Old-age” or retirement part of the program today. Not everyone qualifies for Social Security retirement benefits. Here are the important things to know about Social Security.

  1. First, you need 40 credits to be eligible for Social Security. You can earn up to 4 credits each year. Almost all Americans make enough income to earn these 40 credits over their working life.
  2. The benefit (Primary Insurance Amount or PIA) is calculated from your average indexed monthly earnings (AIME.) This takes your highest 35 earning years and averages them out to a monthly earning. Once you have the AIME, then the benefit is calculated with the following formula.
  • A) 90 percent of the first $895 of his/her average indexed monthly earnings, plus
  • B) 32 percent of his/her AIME over $895 and through $5,397, plus
  • C) 15 percent of his/her average indexed monthly earnings over $5,397.

*Updated in 2018. These numbers change every year to reflect inflation.

Bend Points

The graph below is sometimes called the “Benefit Formula Bend Points.” It shows that the more you earn, the more Social Security Benefits you will receive in retirement.

Social Security bend points

We can see that the less money you make over your working life, the more helpful Social Security will be in retirement. If your AIME is about $1,000, then the PIA (Social Security Benefits) would replace almost 90% of your income. As the AIME increases, the benefit covers less percentage of your income. So if your AIME is about $9,000, then you’d receive $2,788 or 30% of your average monthly income. For 2018, $2,788 is the maximum amount of Social Security Benefits you can receive.

This is about right because lower income households need a lot more help with retirement. High-income earners can save more in their retirement accounts and pay for their own retirement.

I also added where Mrs. RB40 and I are on this graph. We already collected 40 credits each and are qualified for Social Security Benefits. We’ll dig deeper into those 2 dots next.

Early Retirement Impacts Social Security Benefits

Social Security is a bit uncertain for my generation because the program will start to run out of money in our early 60s. If Congress doesn’t reform the program by 2034, then it will only have enough money to pay out about 75% of the full benefit. However, Social Security reform is going to be extremely difficult. The Congress is ridiculously partisan today and they can’t get anything done. It’s ridiculous. They’ll keep kicking the can down the road and we’ll all pay the price someday. Workers and employers probably will have to pay higher payroll taxes. The retirement age will probably increase, too. We’ll join Congress by sticking our heads in the sand and ignore the problem for now.

*For 2018, you pay social security tax up to $128,400 of your earnings.

If you paid close attention to the recap above, you would know that early retirement will decrease your Social Security benefit. Retiring early means you will miss out on your peak earning years and this will reduce your AIME, the average of your 35 highest earning years. I quit my engineering career at 38 and I still don’t have 35 years of earnings yet. As of 2018, I have 24 years of earnings under my belt. That means I have 11 years of no earnings to bring my AIME down. That’s why my current standing is a bit below the second bend point.

My current AIME is 24 years of earnings divided by 35.

Joe’s AIME = $4,894

Luckily, I had some income over these last few years, but who knows how long that will continue. Here is the chart of our Taxed Social Security Earnings.

Taxed Social Security Earnings

Mrs. RB40’s AIME is even worse. She also has 24 years of earnings, but she had low earnings for many of those years. Now she makes more money than I do, but it will take many more years before her AIME catches up to mine.

Mrs. RB40’s AIME = $2,658

Now let’s go through a few scenarios and see how my benefits will turn out.

Estimated Social Security Benefits

Here is my latest Social Security statement

You have earned enough credits to qualify for retirement benefits. At your current earnings rate, your estimated payment would be:

At full retirement age (67): $2,510 a month

At age 70: $3,113 a month

At early retirement age (62): $1,763 a month

Your estimates are based on the assumption that you will earn $60,524 a year from now until retirement.

I don’t really trust this because my online income is very unstable. I doubt this blog will continue to generate this level of income. We’ll use the Detailed PIA Calculator to figure out a few more scenarios. They used to have this online, but now you have to install the program on your computer. It’s a pain to install and figure out how to use. Anyway…

Full retirement now: $2,096/m

If I stop working now and have no more earned income, my benefits would be $2,096 when I’m 67. This is the red dot on my Retirement Social Security Benefit graph above. This PIA is relatively low here because I have 11 years with no earnings. Remember, I only have 24 earning years up until today. The AIME calculation sums up your highest 35 earning years and averages them out. The 11 zero earning years drag down the average.

Part-time Self Employment for 11 more years: $2,354/m

My online income has been unstable, but I’m pretty sure I can make $36,000/year for 11 more years. Once RB40Jr (our son) goes off to college, I probably will stop working completely to travel more. In this scenario, I’ll make $36,000/year until 2030. Then I won’t have any income after that. My estimated benefits would be $2,354/month. That’s significantly more than if I stop working completely now. The $36,000/year replaced many of the $0 earning years in the AIME calculation.

Part-time Self Employment for 21 more years: $2,369/m

What if I continue working part-time for 10 more years until 2040. That will increase the estimated benefits by just $15. Wow, that’s pretty crazy. Working 10 more years for $15/month extra in Social Security Benefits? That isn’t a good trade.

This increase is very minimal because working 10 more years won’t change the AIME much. In the previous scenario, I have 35 good working years. $36,000/year at that point isn’t increasing the average much.

Back to work as an engineer for 21 more years: $2,791/m

This one makes a big difference. If I bite the bullet and go back to work as an engineer ($100,000/year), my Social Security Benefits would increase considerably. However, I really don’t want to do that. Life has been too good since I retired. Personally, I think engineers should plan for an early retirement or a career change. It’s too stressful to work in the profession for your whole career.

ScenarioEstimated Social Security Benefits
Full retirement now$2,096
Part-time self-employment until 2030$2,354
Part-time self-employment until 2040$2,369
Back to full-time employment until 2040$2,791


You can clearly see how early retirement impacts Social Security Benefits in this spreadsheet. If you retire before working for 35 years, it will hurt your benefits a lot. Once you have worked for 35 years, working more wouldn’t make much difference unless you also make a lot more money. Now that I know this, does it change my mind about early retirement?

After 6 years of being a SAHD/blogger

Not at all, things are looking pretty good in early retirement. Even if I stop working completely today, I’d still receive $2,096 in Social Security retirement benefit when I turn 67. That’s not too shabby. Mrs. RB40 should also receive at least $1,400 in benefits if she retires now. That’s $3,500 per month and it will cover 70% of our monthly expense. If we keep earning income until 2030, the Social Security Benefits should cover almost 100% of our monthly expense. Assuming we can keep lifestyle inflation under control, of course. Also, Mrs. RB40 isn’t quite ready to retire yet.

The only big hiccup is future changes to the Social Security program. Once Congress get their act together and reform Social Security, we’ll all feel the pain. Bah, I’ll deal with it when the time comes.

I’m sure we’ll get some benefits so I’m not worried too much. Meanwhile, we will keep working to increase our passive income. Once our passive income surpasses our expense consistently, then we’ll be set for life. Any Social Security Benefits will be gravy. My father in law uses his Social Security Benefits as a donation fund. I’d love to do the same when we’re 67. Wouldn’t you?

Have you checked your Social Security statement lately? Are you counting on it to fund your retirement?

*Sign up for a free account at Personal Capital to help manage your investment accounts and net worth. I log in almost every day to check on my accounts and cash flow. It’s a great site for DIY investors. Take charge of your finance so you don’t have to depend on Social Security in your old age!

Photo by Marc Szeglat

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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, he couldn't stomach the corporate BS.

Joe left his engineering career behind to become a stay-at-home dad/blogger at 38. Today, he blogs about financial independence, early retirement, investing, and living a frugal lifestyle. See how he generates Passive Income here.

Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help DIY investors analyze their portfolio and plan for retirement.

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{ 103 comments… add one }
  • William @ Drop Dead Money August 8, 2012, 3:54 am

    Not only is the amount getting reduced, the age at which it starts could change, too. Your attitude is probably the healthiest one: don’t count on it.

    Also keep in mind that the value of your investments/assets is affected by the economic cycle. Cycles in the recent past have all been 7-10 years in duration, bottom to bottom. You can get a significant jump by (once a decade) selling and buying. Depending on the severity of the downturn, you can add a 20-30% jump in value every cycle. Most importantly, you won’t get caught (like many did recently) where you have to liquidate at a down time.

    Wish I knew all this when I was you age… 🙂

    • retirebyforty August 8, 2012, 7:38 am

      I’m terrible at the whole economic cycle thing. I’ve been just adding into the investment regularly to take advantage of dollar cost averaging. However, now that I’ll invest less, I’ll have to be smarter about the economic cycle.

    • Zack October 21, 2017, 8:00 pm


      I’m curious how you would implement this insight to actually be better off than staying invested in the market like retirebyforty has done? It seems like it would be really costly pulling money out of the market for years while waiting for a correction and difficult to know when it has hit bottom and is time to reinvest the money.

    • David @ VapeHabitat August 1, 2018, 6:08 am

      Me too, William, me too.
      Too bad, there was no internet when I was young..

  • [email protected]&More August 8, 2012, 6:53 am

    I personally don’t count on social security being around in its current form either. I don’t have plans to quit the corporate grind anytime soon but it is good to know I will need to forecast this to see how it will affect my potential retirement fun money!

    • retirebyforty August 8, 2012, 7:37 am

      I guess the younger you are the less you can count on. I’ll probably get less benefit and perhaps the full retirement age will rise a bit. We’ll see what happens when Washington deal with this.

      • Mr. Tako @ Mr. Tako Escapes April 25, 2016, 8:22 am

        I’m in the same boat. For my own calculations, I did not include SS. I assumed $0. Everything else is going to come from small businesses and investments.

        Anything we do end up receiving will be gravy on top!

    • Nurse Frugal August 8, 2012, 9:59 am

      I don’t plan on it being there either!! I expect to retire off of my own money! Social security was meant to be a supplement and people are now expecting it to be their entire means of retiring! Such a scary and unstable idea!!!

      • retirebyforty August 8, 2012, 4:13 pm

        That’s great to hear. Most readers agree with you.
        It’s too bad so many Americans have so little retirement saving. It’s a tough situation.

  • krantcents August 8, 2012, 7:00 am

    The glass is half full too. You didn’t pay much into it, but look at what you will receive. I have been out of the Social Security system for years because the school district pension scheme and self employment. The penalty is minor compared to what you can elsewhere. When I retire (again) I will be penalized because I receive a pension.

    • retirebyforty August 8, 2012, 7:35 am

      Can you get spousal benefit? My mother in law just retired from teaching and she is in the same situation as you. I haven’t look into how pension changes the calculation. Thanks for the info. I’ll look into that.

  • Mr. Everyday Dollar August 8, 2012, 7:12 am

    A really great exercise, thanks for sharing. I figure my taxable investment account will cover me from early retirement to “real” retirement at 60-something and perhaps beyond. My 401k will be an added bonus at “real” retirement and social security will be fun money, if the program is still around at that time.

    • retirebyforty August 8, 2012, 7:40 am

      No problem. That’s similar to what I’m doing. I’m doing some freelancing to help the taxable account. I don’t want to draw down too fast.

  • Financial Samurai August 8, 2012, 7:28 am

    Good stuff Joe! Can you clarify when you say you have 20 years of earnings? Does that mean your part-time jobs at under 20 years old counted?

    $1,600 is still nice bonus money!

    • retirebyforty August 8, 2012, 7:33 am

      Yes, any year that you had earning count toward the 35 years. I had a few years with around $3,000 earning.

      • Sam August 8, 2012, 7:22 pm

        Gotcha. So I guess I have 15 years then given my work in HS. I should just check my SD statement.

  • Kurt @ Money Counselor August 8, 2012, 7:39 am

    Very interesting. From what you’ve written, the ‘extra’ SS benefit you would have received had you continued with your corporate job until age 67 is a pittance compared to the toll doing so would have taken on you. One can’t buy good health. Not to be too grim, but Mrs. RB40 may well have been collecting SS survivor benefits 20 years from now if you hadn’t elected to make a change in your life!

    • retirebyforty August 8, 2012, 4:07 pm

      That’s the biggest reason why I left the old job. My health was getting worse and worse and that’s not the right way to live. More money isn’t worth that.

    • Steve August 8, 2012, 5:59 pm

      I wouldn’t call it a pittance, but working full time for 20 years would only raise your benefit by 50%. Hardly seems worth the effort – if you can live on the lower amount.

      On the other hand, the employer would also give you money directly, so maybe it’s not all that bad to have a day job.

      • retirebyforty August 9, 2012, 12:08 am

        A steady paycheck is definitely nice. 🙂

  • Jeff @ Sustainable Life Blog August 8, 2012, 8:13 am

    Interesting analysis joe – glad to know how this affects a persons social security. Do you still need to count rental properties as “income” and pay ss tax on them?

    • retirebyforty August 8, 2012, 4:08 pm

      Rental, interest, and dividend are not earned income and you won’t need to pay ss tax on them. Welcome back from your honeymoon. 🙂

  • SavvyFinancialLatina August 8, 2012, 9:34 am

    At 22 and with 43 years to go till “retirement” (65 years right?), I have a long way to go and I don’t think social security will be an option by that point. I’m not even counting on it. The money that goes out of my paycheck, unfortunately, I consider lost money, the cost of living in the America. Great article though! It definitely informed me about SS benefits. So now when older people talk about their SS benefits, I’ll know how it’s calculated.

    • retirebyforty August 8, 2012, 4:11 pm

      I’m sure social security will be reformed at some point. Our government might surprise you. 🙂

      • SavvyFinancialLatina August 8, 2012, 8:39 pm

        Well, if it is, it will be a nice surprise and I will consider it extra money. I’m not planning for it to be part of my retirement portfolio though. Plus by the time I “retire”, the government might have pushed the retirement age to 75 because we are living longer due to medical advances! LOL Although I wouldn’t want to live past 80.

      • Will April 26, 2016, 5:39 am

        Of course SS will be there in the future. Politicians want power and know they will be voted out of office if they reduce benefits. They also know we own guns and are scared to death of people rioting in the streets. SS will never pay all you bills, but it will be there.

    • jim April 26, 2016, 11:08 am

      “(65 years right?)”

      Full retirement age for anyone born 1960 or after is 67 years.

  • 20's Finances August 8, 2012, 10:01 am

    This is an excellent illustration of retiring early – and I say that knowing some people may think I am a spammer. 😉 Between the two of you, social security and your rental income would cover almost all of your expenses without calculating inflation – and that’s not even touching your nest egg. That must feel pretty good!

    • retirebyforty August 8, 2012, 4:14 pm

      That does feel pretty good. 🙂 Any extra money we get can go toward our travel fund.
      It’s still a long way until full retirement age so many things can happen, but I’m sure we’ll be all right.

  • [email protected] August 8, 2012, 10:05 am

    Thanks for the info. How in the world do they come up with those formulas? Like you, we will just use SS as a bonus and not count on it. My in-laws made some bad financial moves and are living solely on SS right now. It is a very meager existence. Best advice is to just be self sufficient.

    • retirebyforty August 8, 2012, 4:16 pm

      It’s good that it’s not linear. Well off earners need less help than low income earners.
      My in-laws have pensions so they are doing pretty well. 🙂

  • Darwin's Money August 8, 2012, 10:13 am

    Really cool analysis, thanks for putting this together. It gives me some perspective and we’re pretty close financially I think when it comes to past earnings, tenure and benefits, so I can see how various scenarios would play out if I took the same route. Funny “soul-sucking” term, that’s how many Americans feel!

  • Nick August 8, 2012, 10:51 am

    I’ve been struggling with what to do re: projecting my ss benefits. I’ve decided to aim for no social security with my projections, not because I’m a conspiracy theorist, but I’d rather be overprepared (and leave a bunch to my kids) than under. So this way I have the worst case covered. I’m almost 34, so a lot can happen between now and retirement age (whatever that will be when I hit my 60s…). 🙂

  • jefferson August 8, 2012, 1:58 pm

    Like many others, when considering my retirement.. I just assume that social security won’t be there… The solvency numbers that I have heard over the years lead me to believe that this is pretty much inevitable without major changes..

  • Ornella @ Moneylicious August 9, 2012, 1:47 pm

    It’s great that you looked into this. Social Security was not meant to replace your income. And based on the formula for calculating one’s Social Security benefit, the more money you make the less you actually received. Besides, with full retirement age increase to 67 (and it might further increase) that will be a little damper on retirement. All retirement account allow you access (penalty free) starting at age 59 1/2. There’s at least 7.5 years to wait until you can touch Social Security, and that’s under current law. Therefore, as you know, retirement and financial future’s success is completely on your shoulders.

    • retirebyforty August 9, 2012, 10:27 pm

      Social security was meant to work in tandem with personal saving and pension. Unfortunately, many people do not have either of those things. It’s a tough living if you have to depend on social security benefit alone.

  • Naomi June 11, 2013, 1:15 pm

    Are those benefit amounts in today’s dollars?

    • retirebyforty June 11, 2013, 10:30 pm

      They get a cost of living adjustment periodically. I’m not sure if this is reflected in the projected number. It’s all academic until you receive the benefit anyway. I’ll research a bit more. Thanks for pointing this out.

  • The Green Swan April 25, 2016, 4:25 am

    This is a good primer on SS, Joe, thanks for re-posting. I’ve never paid much attention to SS since I figure I won’t get much if any benefit from it, I’m 30 right now. I expect Congress will eventually fix it to keep it solvent, but I’m not counting on it for myself in retirement to be safe. But it is good to hear that our personal SS estimates can be found easily online now, I’ll have to take a look.

    The Green Swan

    • retirebyforty April 25, 2016, 10:06 am

      I think you’ll still get some Social Security benefit. I’m sure Congress will reform it at some point. A lot of retirees depends on Social Security benefit and they won’t be able to ignore those voters.

  • Chris @ Apathy Ends April 25, 2016, 4:53 am

    Glad you reposted this, I didn’t know how benefits were calculated.

    Like The Green Swan, I am not counting on social security, I am 29 and assuming the retirement age can is going to get kicked along with the rest of it.

  • Andy April 25, 2016, 6:38 am

    I always thought it was the best 20 years. Didnt know it was 35.

    • retirebyforty April 25, 2016, 10:07 am

      Yeap, 35 years is a long time to average your income. However, once you get near the 2nd bend point, the benefit starts to decrease quite a bit.

  • FinanceSuperhero April 25, 2016, 7:20 am

    This is easily one of the best explanations of how Social Security really works. I was just trying to explain all of this to my father, who is possibly going to retire prior to 67 in a few years. I may send this to him, as I think the graphs will demystify the issues for him.

    • retirebyforty April 25, 2016, 10:08 am

      Thank you! Tell all your friends about this post. 🙂

  • Sandy April 25, 2016, 9:48 am

    I have often wondered what the SS cost of retiring say at 57 instead of at 67 after at least 35 years of full time work would very specifically. It doesn’t sound like much, even though 10 higher earning years would theoretically be replacing 10 lower earning years. The SS calculator seems to assume that if you stop working before 62 you automatically start collecting SS at 62. Would like to consider a 57 retirement, 67 collect SS benefits scenario, assuming that a small pension and personal savings will get me through this early retirement period.

  • AmyB. April 25, 2016, 12:13 pm

    I don’t believe social security will ever disappear. The news reports that 34%-65% of seniors live off social security for 50%-100% of their income. If there was no Social Security, many of them would fill the Welfare rolls needing food and housing assistance.
    Sure the age will increase and the amount we contribute will as well, but Americans as a whole are not the best savers/planners, so I don’t expect it to be eliminated.

    Plus what brave Congressman is going to submit radical changes for Social Security knowing they are assured to lose his/her job. Their mantra is Job one is to keep your job.

    • retirebyforty April 25, 2016, 12:33 pm

      I’m sure Congress will get their act together at some point. It’s easier to kick the can down the road for now, but in a few years they won’t be able to ignore the problem anymore. I read that raising the cap rate would help a ton. That seems like the most painless step to me.

  • Justin April 25, 2016, 3:28 pm

    Even though I only worked full time for 10 years, I’ll still be getting over $10,000 per year from SS at regular retirement age. Same for Mrs. RoG. $20,000/yr won’t quite cover our living expenses but it should cover most of the core expenses (housing, food, transportation) so as long as we have just a little left in our investment accounts by then, we will be totally fine financially.

    Though I know a more likely scenario is that our investments will remain flat or grow slightly over the years to the point that we don’t need SS at all. Then it’ll probably fund grandkids’ college or fun extended family trips or go to charity.

    • retirebyforty April 26, 2016, 10:02 am

      Now that you mention it. It’s pretty amazing that you worked only 10 years.
      It looks like you’re right near the 1st bend point. You could still increase your Social Security benefit by just working 10 more years. 🙂
      I’m hoping we won’t need Social Security either, but you never know how things are going to turn out.

  • The Jolly Ledger April 25, 2016, 3:53 pm

    Joe, we are about the same age so we should be going through the same issues with SS in the future. My projected monthly benefits for age 67 were $1,946 assuming I retire at age 45. If I wait until age 70 to collect, my monthly benefits increase to $2,413. I haven’t calculated my spouse’s benefit since he has had very low income his whole working life, but I am now curious since it looks like SS benefits the low income worker more! Thanks for updating.

    • retirebyforty April 26, 2016, 10:02 am

      You should check your spouse’s benefit. You might be pleasantly surprise.

  • Alan April 25, 2016, 3:57 pm

    Social Security but there is an insidious ways the Government will adjust it so that they have money. In fact its already happening. The estimated benefits are in today’s dollars and adjusted for inflation every year, or so they say. In 2016 the adjustment is 0% because they say there is exactly zero inflation, but I don’t know about you, but I see prices increasing. If the inflation adjustments are a bit less than inflation every year, they are effectively lowering payouts a bit every year. They will simply let inflation do their dirty work. The younger you are, the more you will get hit.

    • retirebyforty April 26, 2016, 10:03 am

      You’re right about the COLA. 0% inflation is not true. The cost of grocery alone increased quite a bit every year.

    • jim April 26, 2016, 11:36 am

      The COLA system for Social Security works kind of goofy, but its not just the govt. making up numbers to screw over the old people. They compare the CPI-W of the 3rd quarter of the most recent year versus the previous years 3rd quarter. So to figure 2016’s adjustment they’d look at Q3 of 2015 vs Q3 of 2014.

      Remember how gasoline prices plummeted in the past year? That wasn’t just gasoline it impacted other energy too (home heating, etc) All energy costs were down ~10% in just January 2015. That caused the CPI-W to go down 0.7% in that month alone. So comparing Q3 of 2015 to Q3 of 2014 included the impact of the drop in energy prices.

      So as it works out Q3 of 2015 to Q3 of 2014 for the CPI-W was flat.

      This is how SS COLA has worked since 1972. There are also years when SS COLA goes up more than CPI would generally indicate. The broader CPI is CPI-U and in 2007 it was up only 4.1% but then in 2008 SS COLA went up 5.8%. If you average CPI-U annual increases over the past 10 years they are 1.86% and SS COLA increase averages at 1.99%.

      Arguably CPIW Q3 vs Q3 is not a great way to do it. They should look at the entire year increases for CPI-U as a better measure. But if they did… average SS COLA would be lower.

      • retirebyforty April 27, 2016, 10:38 am

        Thank you for the clarification. I thought CPI doesn’t count gasoline. 🙂

  • Mandy April 25, 2016, 7:13 pm

    Very helpful. I plan to retire before 55 and have yet to check impact on future SS payments… This is excellent primer and the calculations tell me I don’t have to worry too much about how retiring early is going to impact my SS payments.

    • retirebyforty April 26, 2016, 10:04 am

      I don’t think you have to worry much at 55. You’d have 30+ years of earning already. The benefit shouldn’t change much for you. Thank you for the encouragement.

  • clarice April 25, 2016, 9:44 pm

    If I retire early, Will I be able to hold at least a part-time job?

    • Alan April 26, 2016, 11:24 am

      If you are younger than full retirement age this year, and you work while receiving Social Security, you will lose $1 from your benefits for each $2 you earn above $15,720.

  • nicoleandmaggie April 26, 2016, 9:52 am

    I dunno, $700/mo in perpetuity looks like a pretty substantial difference to me, especially off a base of less than $2000 — that’s more than a third of the baseline benefit.

    • retirebyforty April 26, 2016, 10:06 am

      25 more years of working would be perpetuity for me. 🙂

  • Dividendsdownunder April 26, 2016, 3:35 pm

    Very interesting to read about, thanks for sharing Joe. Australia is completely different, it’s interesting to see the differences.


  • supernova72 April 26, 2016, 3:48 pm

    I’ve messed around on the ssa.gov site a few times. My estimate at 62 yrs assumes I work until 62 so I was trying to do different scenario’s say retiring at 56 or 57. Now I can’t seem to find that calculator? Think it’s a senior moment on my part.
    At 62 it says $1810 a month…

  • AW May 7, 2016, 1:37 pm

    This had been on my list of curiosities but I had only lightly researched. You are doing a great job of filling gaps in my understanding and perspective, and doing it artfully! Love it

  • David Michael May 17, 2016, 8:51 am

    Great topic Joe, once again. OK…I’ve been retired for over 22 years and I’ll give my take on Social Security present and future. In a few months I’ll be 80, twice your age 40 take on retirement.

    1) In referring to many of the comments to your article, I am a bit surprised by the negativity and “give-up” attitude of your younger readers. Social Security is one of the main legs of any retirement program in this country as well as most developed countries around the globe. I fully expect SS to be alive and well 20-40-60 years from now by eliminating the cap and possibly increasing the age limit by one or two years as longevity improves. It is important that each of us focuses on working with our Congressional Representatives and fight to keep SS healthy and fully funded. Our military expenditures over the last 20 years would have paid for SS plus universal health care. And…time to fire any do-nothing Reps who work for the 2% rather than the 98% of us that make up this country.

    2) While everyone is madly putting away money for retirement, here are a few hard facts out there in the game of life. There’s a 50% chance you will lose half of your nest egg to a divorce. A lot of divorces come after the children have been raised and women in particular want their freedom. Fortunately, Social Security provides a backup for each spouse. It is not unusual for the highest earner to pay lifetime alimony to the other spouse (usually to the wife).

    3) The stock market, despite the wonderful world of quarterly dividends, can be a cruel place. It’s quite conceivable that a severe downturn could last 10-20 years. Thus, the reason for being well diversified over several different financial areas. I lost over $500,000 in a theorectical safe investment called an annuity when the company went bankrupt. Unusual but it happens.

    4) I fully expected to have a retirement income of $9000 a month. Instead, we have $3000 due to the above. Fortunately, we have created a great retirement nonetheless, but one of the main reasons was Social Security. Do not let politicians scare, deceive or spend you out of one of the most important programs in this country.

    • retirebyforty May 17, 2016, 9:44 pm

      I think Social Security will be around as well. Congress will have to reform it at some point. Voters won’t let them run it into the ground.

  • [email protected] December 4, 2016, 9:50 pm

    Joe, I recently found this great article. Sorry for the late reply. I believe it is very important to know our options, with respect to the retirement time and the time of applying for benefit. I am not retired yet, but may consider to do that at some point. Now I have a question regarding this statement:
    Scenario Benefit estimate at 67
    Fully retire now, no more earned income $1,974
    Actually my career time is about 20 years and it seems close to yours (BTW also in electrical engineering), and I use the same great online calculator as you are. But it does not provide us with the benefit at 67. It always calculates the benefit at 62, for those who stop working before 62. I wonder where did you get this number: $1,974? I’ve got similar number, but for 62. For 67, I calculated it myself and it is greater than that. Just curious …

    • retirebyforty December 5, 2016, 9:06 am

      I just used the estimate from the social security office. It assume I’ll still make a little income going forward, but it really won’t make a big difference in the benefit at this point. The Social Security website has some good calculators you can mess around with.

  • Jacq February 12, 2017, 6:28 pm

    An article about increasing the retirement age to 70 is one of those factors that got me into ‘early retirement’. Of my 4 grandparents 72 was the average age they passed away. Even with a 67 yr old limit, that 5 years! Sure in theory we are living longer, but my gram went almost instantly from an undiagnosed issue. My grandparents retired at 55-58 and got a lot of time with us grandkids!
    My dad was early retired before age 60 whena management change happened. My mom was fed up with the administration and chose to retire early too. I want to build myself the ability to also be self sufficient.
    I am not counting on social security, rather myself and as others said, it’ll be a bonus to enhance my savings or donate it.

    • Arrgo February 13, 2017, 10:17 am

      Good points you mention. The flip-side of all this that isnt discussed very much is you dont know how long you will live or how good your health will be later on. At least plannieng for an early retirement will give you some options. I find it kind of funny when I read articles that say if you work until your 67 or 70 then you will get this much more money from SS! That can be a good thing of coarse but also most of you life and good years are probably over too! I’d rather figure out how to retire early than to work a lot longer just to get try and get another couple hundred a month in my SS check. If you save and plan correctly, you wont need it. I think its better to enjoy yourself earlier than having the man run you around until your 60+.

  • Monica Balicki June 19, 2017, 3:49 pm

    I just want to thank you for posting this formula for calculating SS benefits on your website. I have been looking for something like this for weeks! I crunched my numbers and all is looking good. I am feeling more confident about the possibility of retiring early!

  • Zack October 21, 2017, 8:00 pm

    Great article. My wife and I just set up our accounts on my social security to make sure someone else doesn’t use our information from the Equifax hack to create one and block us out. I’m sure it doesn’t make it impossible, but I imagine it adds an extra layer of difficulty and there are plenty of easier and more wealthy targets than us now.

  • Ann Stokman April 6, 2018, 3:30 am

    Awesome Analysis!

  • Xrayvsn October 8, 2018, 3:56 am

    The bend points of social security really make it not worth busting your butt and make money, pay higher taxes, and then see only a small return (especially at the highest bend point) in social security benefits.

    That plus the uncertainty of how social security will be changed when the funds start getting stressed as payouts increase will make staying in a career longer just for increasing benefits a losing scenario.

    I hope you read my post tomorrow (Tues) because it coincidentally speaks of this very issue.

    • retirebyforty October 8, 2018, 10:51 am

      I’m looking forward to it. I’m still having a problem at your site due to the white on black text. My eyes can’t handle that. I’ll cut and paste to an editor so I can read.

      • Xrayvsn October 9, 2018, 2:50 am

        Thanks Joe,

        Here is the direct link: https://xrayvsn.com/2018/10/09/uncle-sam-worse-than-bernie-madoff/

        I am sorry about the visual issues my site is causing 🙁 I know Firefox has in its browser the ability to do text only reads (I forgot what it is called but there is an icon in top bar) that basically takes out all the pictures and makes it just black text on white background. Not sure if the browser you are using has a similar function.

  • According to the book Millionaire Expat by Andrew Hallam there is no government pension at all for many long term international expats like myself with non resident status seeing we don’t pay into the system long enough … so he shows how to invest while overseas

    • retirebyforty October 8, 2018, 10:52 am

      That’s right, I forgot about that. But you guys pay a lot less taxes due to FEIE. Hopefully, expats invest those savings instead of using them. It’d be tough to accumulate 40 credits if you work overseas.

  • caroline October 8, 2018, 5:01 am

    I didn’t think the social security in the US was so generous! I do play with the Canadian calculator once in a while to see what I can potentially get, doesn’t look too bad either. We can also elect to start getting Canada Pension Plan at 60 , but at a large discount. Cheers

    • retirebyforty October 8, 2018, 10:53 am

      It’s really not bad. Lots of people survive on Social Security benefits and Medicaid/care.

  • Financial Samurai October 8, 2018, 7:02 am

    Cool republication from 2012. I think I checked 1 or 2 years ago, and I was in the mid-$2000s. That would be sweet if I got SS, and my wife too… but we don’t count on it.

    In fact, we forget we’re gonna get SS, which means it’s like a nice gift!

    If we can earn a combined $5,000 a month in Social Security, I dare say life would be just fine.


    • retirebyforty October 8, 2018, 10:54 am

      You should earmark your benefits for donation like my FIL. Hopefully, we won’t need it and can do the same when we turn 67.

  • Ed October 8, 2018, 8:06 am

    Joe- What you discovered is the big secret on why retiring early doesn’t really impact SS that much. Once you have locked in the second bend point by earning that AME including the zeroes for the other years you are on the diminishing returns side of SS. What is startling, is that if you worked those other 21 years at your Engineering job how much you would have to pay in SS taxes to get that extra couple of hundred a month. You would come out way ahead just in buying a separate annuity or investing in a balanced fund. When I ran the numbers my SS payments and lifetime earnings for early retirement (assuming death at 84) came out within 10-15% of staying for another 10 years. Not really worth the peace I have now as an early retiree. Thanks for your great explanation on bend points and how the system really works. Unfortunately, most other finance sites don’t get into the details and most people are fearful that retiring early will dramatically impact their SS benefits and that is incorrect.

    • retirebyforty October 8, 2018, 10:55 am

      That second bend point maximizes the work/benefit equation. Going beyond that is fine if you enjoy working. Don’t do it for the Social Security Benefits. 🙂
      Thanks for your comment.

  • freddy smidlap October 8, 2018, 10:01 am

    we’re “lucky” to be sort of old in our house. mrs. just turned 55 and i’m 50 and we had a lot of stress-free times in our early lives. we kinda got serious the past 15 years or so when we got hitched but it feels good knowing our money doesn’t have to last 30 more years on its own. we can get 51k a year after age 67 or around 37k if we take it early at 62. who knows what we’ll end up doing but it feels like at least time to scale back on accumulation and enjoying more money now.

    • retirebyforty October 8, 2018, 10:57 am

      I think it’s looking good for you. Hopefully, they’ll keep the program the same for older retirees. Although, it seems like the program will run out of money earlier every time I look. The last time I checked, it was 2037. Now it’s 2034. That part doesn’t look good.

  • Pennypincher October 8, 2018, 10:14 am

    Good food for thought here. Thank you!
    So interesting you did the numbers, in seeing that more work years didn’t really amount to much more benefits.
    I bet your readers here are tallying up their work years right now, ha,ha.

  • David Michael October 8, 2018, 10:37 am

    I am disappointed by the attitude of many young people these days that Social Security will disappear in the future or benefits will be reduced. If that happens it’s because the voters didn’t get out there and demand simple changes like eliminating the cap. Everyone should reread the book or watch the film, “1984” by George Orwell. I watched the film on Amazon Prime again last night and it was especially significant because of the Trump Presidency and America’s focus on war and disinformation. It’s very important that you and everyone you know get out there and vote in November. Basically the USA has become a Fascist State ruled by a handful of billionaires trying to eliminate all so called “Entitlements”.

    In my 80’s, I have been on Social Security for nearly 20 years. It is an outstanding program that can be improved with a few modest changes.

  • Eric @ Flip n Finances October 8, 2018, 12:02 pm

    I definitely am not counting on SS benefits when I hit age 62 (35+ years away). I’m expecting to not even receive a nickel by that time.

    Social Security simply isn’t sustainable at the rate we’re going. Focus on being independent of any government programs. If I do get anything back, I would probably give it to charity like one of the above posters said 🙂

    • Chadnudj October 8, 2018, 2:21 pm

      If they make ZERO changes to Social Security, it can still pay out 72% of benefits (I believe).

      Fixing Social Security is literally one of the easiest things our federal government could do (eliminate the cap on income subject to SS taxes basically gets you almost the entire way there). There’s even a great calculator (http://www.crfb.org/socialsecurityreformer/) that shows you how different changes would impact the long term viability of Social Security. Making all wages subject to Social Security fills 72% of the shortfall (and would only be a burden on those making over double the median wage), for instance.

      If you think Social Security won’t be there for you, you have a duty to vote for elected officials serious about permanently fixing it, not plan for getting nothing.

  • Mr. Groovy October 8, 2018, 1:55 pm

    Nice analysis, Joe. I’m in freddy’s position as well. Mrs. Groovy and I retired at 55, so we both have our 35 years of income for Social Security purposes. I always wondered, though, if I was forgoing too much mailbox money by not working another five or ten years. I no doubt have, but the benefits of owning 100 percent of my time now rather than later far outweighs the extra $200-$300 a month. Great post, my friend.

  • FIRECracker October 8, 2018, 1:57 pm

    $3500/month in social security wouldn’t be shabby at all–but as you said, that could change at any point. Which is why I think it’s even more imperative that we become FI. Relying on the government to save you isn’t a bet I’m willing to make. Sure, you’ll lose out on some social security, but you’ll gain so much more in health, freedom, new opportunities, and time with your family. Can’t buy most of those things with money. I also agree that it’s too stressful to be an engineer until your late 60s. In fact, I don’t even think most companies will employ you ’till then because they can always replace you with someone younger, coming out of school knowing the newer technologies, and will work for 1/3 of your salary. I saw it happen at my job–my poor co-worker got let go in his late 50s and couldn’t find a job after that. He wasn’t FI so it was super scary for him. Staying an engineering until regular retirement isn’t a realistic bet for me.

  • Susan @ FI Ideas October 9, 2018, 8:14 am

    Retiring in our fifties, we left a few of those 35 years empty. Not as many as you, but it is interesting to see that it doesn’t penalize you much due to that second bend point. We are really mixed on whether to wait to 70 because our RMDs will be big then and the longer we wait, the more they may tax this or eliminate it for high “income” earners like RMD people will become.

    Either way, we will probably end up like your father-in-law, with it being a donation. Either to a charity of our choosing or the tax base!

    • retirebyforty October 10, 2018, 9:28 am

      The difference will be smaller and smaller once we get a few more years in. I think I’m in good shape with the blog income.
      I don’t think I’d wait until 70. At that point, the charities will have waited long enough. 🙂 I guess we’ll see.

  • Jared October 10, 2018, 7:59 am

    I didn’t catch this the first time you wrote it, so thanks for updating! I love when financial bloggers breakdown complex tax and retirement planning topics so the common folk like me can understand.

    • retirebyforty October 10, 2018, 9:29 am

      Thanks for the encouragement. It’s always hard to put a lot of numbers into a post. I think most people lose interest quickly when they see a lot of numbers. 🙂

  • GYM October 10, 2018, 11:20 pm

    Wow, if this income is factored in you guys are set, Mrs. RB40 doesn’t need to work anymore!

    We have similar benefits too up north but I’m not counting on it since it will be a while since I turn 65 or 60. Potential for too many changes to the program.

  • Mac | Personal Finance Blog October 29, 2018, 10:18 am

    Thanks for sharing such an interesting post with us. Your take on impact of early retirement on social benefits is very informative. It was fun to see the numbers you have crunched and the calculations. I agree that the Social Security plans need some changes to make it more efficient.

  • Greg Grothaus January 29, 2019, 6:23 pm

    > We’ll use the Detailed PIA Calculator to figure out a few more scenarios. They used to have this online, but now you have to install the program on your computer. It’s a pain to install and figure out how to use.

    Take a look at https://socialsecurity.tools/ as an alternative. It requires simply copy/pasting your earnings and then lets you run scenarios by just adjusting simple sliders. Much easier than the AnyPIA detailed calculator.

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