Factors That May Affect Your Retirement Benefits

Early retirement is an option taken by many Americans

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Many factors can affect your retirement benefits, and most have to do with timing. One of the most significant factors affecting your retirement benefits is when you retire. If you retire early, as many Americans do, you reduce the amount you would have contributed to your retirement plan if you retire at normal retirement age. Retiring early also increases the number of years during which your retirement savings will have to provide you with income.

When You Begin Saving

It’s never too early to start planning for retirement, and that means saving money. The earlier you start saving for retirement, the more money you’ll have. Not only will you contribute more, but the interest compounded on your savings every year ultimately becomes larger than many people’s annual contributions. Consider – someone who establishes an IRA at age 21, contributes $2,000 annually and earns 2 percent a year on it, will, when he turns age 66, have about $40,000 more in the account than someone who starts 10 years later, at age 31 – even though he’s only contributed $20,000 more to the plan. Increasing the interest assumption only highlights the value of starting to save for retirement as early as you can.

Social Security

Although intended to be a supplement to retirement savings, for many Americans, Social Security is the main source of income in retirement. These benefits are based on a fairly complex formula involving your actual earnings throughout your working life. You can start collecting benefits as early as age 62 or you can wait until as late as age 70. The earlier you start collecting, the smaller the monthly checks will be; conversely, the longer you wait, the larger the monthly benefit. Social Security benefits are generally increased annually to account for inflation.


Many Americans who take early Social Security retirement continue to earn money, either working for someone else or from self-employment. If you exceed a certain threshold, income earned this way (but not from interest or dividends, other retirement plans or annuities, among others) can temporarily reduce your benefits, but the reduced amounts will be paid back in the year you reach full retirement age. In addition, your earnings could result in a higher base benefit for you in future years. There are several other circumstances under which Social Security benefits can be reduced, but they apply to a relatively small number of retirees.

Other Life Choices

Many other factors, often life decisions made decades earlier, affect retirement. For example, having children in your late 30s and early 40s means that in your 50s and early 60s, significant sums that could be bulking up you retirement portfolio are going for education and other expenses, while your contemporaries who finished having children in their 20s are saving significant amounts during their prime earning years. The number of children you have, regardless of when in life you have them, also can affect your retirement. Your education and occupation also have a significant impact on the quality of your retirement. Another important factor is the timing of moving from one job to another. Leaving a job shortly before you vest in the employer’s contributions to your retirement plan, for instance, could mean an avoidable penalty of thousands of dollars.