One bad early retirement mistake could cost you $1 out of every $2 you’ve earned – how to protect your golden years

You’ve been counting on retirement for years, but claiming Social Security early while still working can cost you thousands in benefits. This trap affects more people than you might think.

According to the Social Security Administration (SSA), if you claim benefits before your full retirement age and earn more than $24,480 in 2026, $1 in benefits is deducted for every $2 you earn above that limit.

These reductions can increase, delay or reduce your payments while you are still active. It’s one of those landmines waiting for people who don’t do their homework before leaving the workforce.

The appeal of applying at 62 is real: you get money quickly, potentially for many years. But it comes at a constant cost. The SSA ensures that workers born in 1960 or later who turn 62 receive only 70% of their full retirement benefit; a permanent reduction of 30 percent following every payment for the rest of their life (1).

Seeking early makes sense for some. For example, if you are in poor health, have a short life expectancy or need income to cover expenses until Medicare starts at 65, collecting at 62 may be financially wise.

AARP’s analysis finds the “split age” — when waiting maximizes lifetime benefits — tends to be between 78 and 80. If you don’t expect to live past that, searching early may be wise (2).

Problems arise when people think they can collect benefits and continue to work without limits. The $24,480 earnings limit in 2026 applies to all wages, bonuses, and self-employment income. Pensions, investment benefits, and Social Security themselves are not counted.

The silver lining: retained earnings are not lost. Once you reach full retirement age (FRA), the SSA recalculates your monthly payment to repay the credit for the reduced months. However, short-term financial disruptions can be very important for those who are not prepared (3).

Read More: How to apply Dave Ramsey’s 7 steps to your life

Early retirees often face a tough surprise: health care costs, especially if they retire before age 65 and lose employer employment before becoming eligible for Medicare.

Fidelity’s 2025 Retiree Health Care Cost Estimate projects $172,500 in medical expenses over the course of a 65-year-old retiring in 2025, excluding long-term care. Costs have risen more than 4% in just one year, and for early retirees, costs can be even higher (4).

Closing the gap in Medicare at 65 often means buying ACA marketplace coverage, joining a co-op plan, or extending employer coverage through COBRA. Each option has cost and coverage implications that should be mapped out before your last day at work.

If retirement is imminent within the next few years, you have limited time to make informed decisions. Early retirement may be financially wise for some, but the goal is to make clear-eyed decisions, not assumptions.

These moves made now can change your numbers in the long run:

Take out the best catch if you deserve it. Workers age 60-63 can make a “catch-up” contribution to their 401(k). In 2026, that allows a total of up to $35,750 — a base of $24,500 and a maximum withholding of $11,250, if your plan allows. This can provide a reasonable raise during high-earning years, according to Fidelity (5).

Run your Social Security numbers before committing. There is no universally correct answer to when you should search. Your health, work plans, marital status, and financial needs all have an impact. The SSA’s Retirement Earnings Test Calculator (6) and Retirement Estimator (7) can help model your benefits at different claim ages and income levels. A financial planner can model different calculations for your specific situation.

Create a health care bridge system. Know your coverage costs if you retire before Medicare. Consider premiums, deductibles, out-of-pocket costs, and prescription drug costs. If you have a Health Savings Account, HSA funds can be a tax-advantaged way to pay for these expenses.

Don’t think that early retirement equals automatic savings. Leaving work before age 65 can increase health care costs, reduce Social Security benefits, and shorten 401(k) coverage years. For some, early retirement is worth it; for some, staying on the job a few more years can significantly improve their retirement picture.

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Social Security Administration (1)(3)(6)(7); AARP (2); Loyalty (4) (5)

This article first appeared on Moneywise.com under the title: One bad mistake early retirement can cost you $1 of every $2 earned – how to protect your golden years.

This article provides information only and should not be construed as advice. Offered without warranty of any kind.