You're Way Too Young to Retire, Right? You Still Need to Know This Stuff Now

I'm still decades from retiring, but for work I've had to dig into the ins and outs of both preparing for retirement and when to begin collecting Social Security benefits. It's making made me wish I'd put more thought into the idea earlier. It was the furthest thing from my mind when I was in my 20s and early 30s, and I'll bet that's the case for many other people. 

Living from paycheck to paycheck is a reality for over half of Americans, which leaves little room for saving as much as you'd like, let alone planning for your retirement. However, there are some things that you can either do right now or start learning about to prepare yourself in the best way you can. 

Below, I'll break down a few things about retirement and the Social Security system that are important for you to understand -- it's never too early to empower yourself with the knowledge to make changes sooner rather than later. 

For more, don't miss the Social Security payment schedule and how to apply to SSDI. 

Start saving now for a better retirement future

First, and most basic, start saving money now, however young you are and however you can manage it.

If you're working and your employer offers a 401(k) with a percentage match, take advantage of it. Joel Eskovitz, senior director of Social Security and savings at the AARP Public Policy Institute, encourages people to "max out whatever match is offered by your employer, as it's free money for your future." 

Eskovitz also touches on a couple of other things that younger people can do right now, like signing up for a My Social Security account -- yes, even if you're in your 20s or 30s -- and checking your statement of earnings annually to make sure it's accurate. "It's a lot harder to correct yearly earnings later down the line."

Younger people also tend to change jobs more frequently, but if any new employer offers a 401(k) plan, you can roll your older one into the new one. And although it may be tempting, don't withdraw from your 401(k) -- not only are there tax implications, but you're essentially stealing from your future self. 

Keep track of your estimated monthly retirement amount

If you want to get a better idea of how much you'll get per month when you retire, you can sign up for a My Social Security account and estimate how much money you'll receive when you apply for Social Security based on your age. This should help you wrap your head around what your payment could be when you expect to retire and allow you to plan accordingly. 

I signed up for the My Social Security account last year, and after you've confirmed your identity, you'd probably be surprised how easy it is to dive into your details and play around with the retirement payment calculator. 

Your Social Security payments are based on your income

The money you make during your working career directly affects your Social Security benefits when you eventually apply for them. Your benefit amount is calculated using your 35 highest earnings years, no matter how long you've worked. 

For example, say you earned $30,000 annually for 10 years in your early working career and then made $60,000 for the following 37 years. When your Social Security benefit amount is calculated, only 35 of the years you made $60,000 would be taken into consideration. 

Now let's say you earned $30,000 annually for 15 years in your early working career and then made $60,000 for the next 20 years. Since the whole of your working career equals 35 years, your benefit amount would be less than in the example above. If you could work longer in that higher paying job, you'd replace the lower-income years when your benefit is calculated.

There's a cap on Social Security money you can receive

There's a limit on how much of your earnings are considered taxable by the Social Security Administration. This cap on earnings changes every year and anything earned beyond the annual limit isn't considered when determining your benefit amount.  For 2025, the maximum taxable earnings is $176,100.

The cap on earnings also means there's a cap on how much Social Security will pay out each month. 

The maximum payout for 2025 breaks down like this: 

You begin collecting benefits at 62: $2,831

You begin collecting benefits at full retirement age, which can vary depending on your birth year: $4,018

You begin collecting benefits at 70: $5,108

You can collect retirement benefits as soon as 62

You can begin collecting Social Security retirement benefits as soon as 62, but you'll take a hit to your payment -- for the rest of your life. Just see that difference in the section above – it's substantial. While sometimes it's not feasible to wait until full retirement age or 70, holding off just a little longer can be helpful. (There will be COLA increases, but that doesn't change the gap between starting at 62 and starting later.)

When you turn 62, every month that you don't begin receiving benefits will slightly increase your monthly payment you'll be able to collect. So collecting benefits at 62 and 7 months will still give you a bigger payout than if you were to apply for benefits as soon as you turn 62. At the age of 70 is when you will receive the maximum benefit payment. 

You can withdraw or suspend your Social Security benefits

There may be an instance where you apply for retirement benefits and are approved, but then suddenly come into unexpected funds that make the need for Social Security payments unnecessary. Whether it's an inheritance or a high paying job, you might consider withdrawing from your benefits completely if you're under full retirement age. 

Withdrawing from benefits is essentially canceling your application, and the SSA will treat it as though you had never applied. This also means that any benefit payments made to you will have to be repaid in full. You can only withdraw from benefits once.

If you're at full retirement age, you can choose to suspend your benefits. You can suspend your benefits for whatever reason you want, and there doesn't seem to be a hard limit on the number of times you can do this. Suspending your benefits will allow your monthly benefit payments to increase over time up until the age of 70, which will yield your biggest monthly payment. Once you turn 70, the suspension will be automatically lifted. 

You can continue to work and receive Social Security benefits

When you apply for Social Security benefits, you can continue to work, though your monthly benefit amount will be reduced if you're below full retirement age. The Social Security Administration will withhold $1 for every $2 earned above the annual limit. 2025's limit is $23,400. 

The year of your full retirement age, the SSA will reduce $1 for every $3 earned above a different limit, which is $62,160 for 2025. Beginning in the month you'll reach your full retirement age, your earnings will no longer reduce your benefit payment, no matter how much you earn. 

For more, here's how to apply for Supplemental Security Income and the Social Security and SSDI cheat sheet.