Retiring early? Here are 3 ways your Social Security benefits could be affected

If you're thinking about retiring early, you have a tough choice to make about Social Security. You'll have to consider when to claim benefits and the impact your choice could have on the retirement income you end up receiving.

Before you move forward with your early retirement, there are three things you absolutely must know about your Social Security benefits so you can make the right choice.

1. If you claim benefits early, you'll get a lower benefit

You do not have to claim Social Security benefits right after retiring. If you can afford to, you can – and perhaps should – wait. However, many people do need their Social Security to support them when they leave work.

full retirement age

You also give up any chance to earn delayed retirement credits that increase your benefits beyond the standard payout. However, these credits max out at age 70.

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2. Not working for 35 years could shrink your benefit further

There's another important consideration before retiring early. Your Social Security income is calculated based on your average, inflation-adjusted wages over the 35 years you earned the most. If you retire early and don't actually have 35 years of work history, those years of $0 wages will factor into your benefits formula and shrink your checks accordingly.

Working exactly 35 years and no more could also reduce the income you get from Social Security. Every single one of the 35 years you were in the workforce would be included in your benefits calculation.

Since income tends to rise with age, retiring early meanspassing up the extra benefits you could get by replacing more of your low-earning years from early in your career with the higher salary you're likely making prior to retirement.

3. Your benefit may be reduced if you decide to go back to work

Finally, the last thing to consider before retiring early and claiming Social Security is the potential consequence of changing your mind.

If you've claimed your retirement benefits and decide to go back to work, there's a limit on how much you can earn before the Social Security Administration withholds benefits. If you will reach your full retirement age sometime during the year, you can earn up to $59,520. Benefits are reduced by $1 for every $3 earned beyond that amount. And if you won't reach FRA at all during the year, you can only earn up to $22,320 before benefits are reduced by $1 for every $2 earned beyond that amount.

At full retirement age, the Social Security Administration will recalculate your benefits to credit you for the income withheld due to the earnings limit. But losing a chunk of your benefits upfront could be a financial hit if you were counting on the combined income from your job and Social Security to cover your expenses.

This is no longer an issue after you've reached full retirement age, as you can then work as much as you want without affecting your benefits. But it's important to consider if you plan to claim Social Security early and aren't sure if working is something you might want to do.

Before you hand in your notice and move forward with an early retirement, be sure you consider these three Social Security rules carefully so your choices make good financial sense over the long haul.

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