Personal Finance

Retiring at 50? Here's How It Might Impact Your Social Security Checks

Maurie Backman

Published: December 4, 2024 11:42 am

Key Insights from 24/7 Wall St.

• If you retire at 50, you may end up with less Social Security due to a limited wage history.
• It’s important to try to work for at least 35 years to avoid a hit to your monthly benefits.
• You may need more out of Social Security if you’re ending your career at 50 years old.
• Also: Optimize your Social Security plan with the help from a qualified financial advisor ^(Sponsored)

For many Americans, early retirement is the dream. And if you’ve saved well by age 50, you may decide that at that point, you’re ready to call it quits.

Retiring at 50 can pose a challenge from a savings standpoint because at that point, you’re too young to tap an IRA or 401(k) penalty-free. But if you’ve planned for an early retirement by saving and investing outside of a restricted account, this may not be an issue.

That said, you should know that retiring at age 50 could have a negative effect on your Social Security benefits once you’re ready to claim them. So it’s important to understand the impact of that decision.

How your wages impact your Social Security

The monthly Social Security benefit you’re eligible for in retirement is personalized to you. What this means is that the Social Security Administration (SSA) calculates your monthly benefit based on your individual earnings history. From there, the age at which you sign up for benefits will determine how much money you get to collect each month.

The problem with retiring at age 50 is that you’ll be limiting the number of years during which you’re earning an income. And that could translate to less Social Security later in life.

Your Social Security benefits are based on your 35 highest-paid years of earnings. But for each year you don’t have an income, a $0 is factored into your benefits equation.

If you began working full-time at age 21 and now want to retire at 50, that’s only a 29-year work history, leaving you with six years of $0 income to be factored into your benefits calculation. That could result in less Social Security in life.

Now that said, if you’re in a position where you can retire at 50, it probably means that you’ve been bringing in a decent-sized paycheck for much of your career. And your higher earnings may be enough to compensate for a few years of $0 income. But it’s important to recognize that having no income on file at all for that period of time could come back to bite you.

Make sure you’re not setting yourself up for disaster

Retiring at age 50 is a risky move because whatever savings you have at that point may need to be stretched for decades. A higher Social Security benefit could help make up for partially depleted savings by the time you reach your 60s. But without a robust enough earnings history, you may be unhappy with the amount of money Social Security pays you each month.

Before you decide to make your retirement at age 50 official, get an estimate of your monthly Social Security benefit based on your wage history to date by creating an account on the SSA’s website. That should give you a starting point to work with and put you in a better position to make the right call.