• Discounts and special offers
  • Subscriber-only articles and interviews
  • Breaking news and trending topics

Already a subscriber?

By signing up, you accept Moneywise's Terms of Use, Subscription Agreement, and Privacy Policy.

Not interested ?

Calculating your Social Security benefit

The average monthly Social Security benefit for a retired worker is $1,909 (as of January 2024). But that number could be much less if you don’t work and contribute to the plan for a full 35 years.

The amount of your benefit is determined by calculating the average indexed monthly earnings (AIME) from the 35 highest-earning years of your working life, which is adjusted for the cost of living.

If you don’t work the full 35 years, the Social Security Administration (SSA) fills in those gaps with $0 for each year missing. So, if you only work 25 years, your 35 highest-earning years would include 10 years of $0 in earned wages, bringing down your overall average.

Basically, your AIME can be used to determine your primary insurance amount (PIA), which would be the amount you receive if you claim your benefit at full retirement age. You can calculate your PIA by adding:

  • 90% of the first $1,174 of your AIME
  • 32% of your AIME from $1,174 to $7,078
  • 15% of your AIME over $7,078

To estimate your benefit, the SSA has a number of handy tools on its website, which can help you understand the impact of working fewer than 35 years.

Ultimately, if you retire early, you’ll reduce your monthly benefit. And, if you claim your benefits before your full retirement age (around age 67), you’ll reduce your benefits by about 0.5% on average each month, further reducing that monthly check.

Meet Your Retirement Goals Effortlessly

The road to retirement may seem long, but with WiserAdvisor, you can find a trusted partner to guide you every step of the way

WiserAdvisor matches you with vetted financial advisors that offer personalized advice to help you to make the right choices, invest wisely, and secure the retirement you've always dreamed of. Start planning early, and get your retirement mapped out today.

Get Started

Other considerations for early retirement

Medical expenses: If you’re in your 30s, 40s or 50s and in good health, consider that retiring early will leave you without employer-provided medical insurance. And you won’t be eligible for Medicare until age 65. That means you’d have to pay for private medical insurance or pay for medical expenses out-of-pocket, which can quickly add up.

Compounding interest: You’ll also miss out on the benefits of compounding interest if you’re not saving for retirement in your 30s, 40s or 50s. It’s not just how much you’d contribute during that time, but how much interest you’d be earning on the interest that has compounded over decades.

Unexpected expenses: If you have any unexpected expenses (like medical care), you might have to dip into your nest egg early. While that reduces your overall retirement savings, you’ll also have to pay an early withdrawal penalty from tax-deferred accounts, such as 401(k)s and traditional IRAs. Plus, any withdrawal counts as income, so you’ll also have to pay income tax on it.

On the flip side, if you find yourself a bit bored in early retirement, you may end up taking on some gig work or starting a side hustle. In that case, you’ll need to report your income and pay taxes, which in turn would boost your Social Security benefits — and could help you retire more comfortably in the long run.

Sponsored

Meet Your Retirement Goals Effortlessly

The road to retirement may seem long, but with WiserAdvisor, you can find a trusted partner to guide you every step of the way

WiserAdvisor matches you with vetted financial advisors that offer personalized advice to help you to make the right choices, invest wisely, and secure the retirement you've always dreamed of. Start planning early, and get your retirement mapped out today.

About the Author

Vawn Himmelsbach

Vawn Himmelsbach

Freelance Contributor

Vawn Himmelsbach is a journalist who has been covering tech, business and travel for more than two decades. Her work has been published in a variety of publications, including The Globe and Mail, Toronto Star, National Post, CBC News, ITbusiness, CAA Magazine, Zoomer, BOLD Magazine and Travelweek, among others.

What to Read Next

Disclaimer

The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.