As the retirement age approaches when unemployed and after a long working career, the question arises as to whether it is better to request early retirement or continue receiving the subsidy for those over 52 years of age. While the subsidy contributes for retirement for 125% of the current minimum base in exchange for collecting 80% of the IPREM, early retirement allows us to advance the retirement age, but in exchange for suffering cuts in the amount, which can reach up to 30%. Alfonso Muñoz Cuenca, a Social Security official specialized in INSS pensions and benefits, explains what the different routes are and what is the best option for the future pensioner’s pocket.
Alfonso recognizes that this is the biggest question among citizens and indicates that “one of the most common questions I am usually asked is whether it is better to continue collecting the subsidy for those over 52 or request early retirement.” In this situation, the specialist prefers to avoid generic recommendations and states: “I normally do not give advice, because the important thing is that people know all the details, all the options, all the numbers and make the decision that best suits them based on their own economic interests.”
That is to say, there are options, but it does not mean that an option is valid, since each one will depend on the economic, work and personal situation of each worker and future pensioner.
Contribute to retirement or have more money sooner
To make the right decision, it is essential to understand how the help of the State Public Employment Service works. Muñoz clarifies that “the first element to take into account is the subsidy quote“. The great attraction of this benefit is that “this subsidy is quoted for 125% of the minimum base, which currently represents a base of 1,726.50 euros per month. This is good because, even though the subsidy is being collected, contributions for the future pension continue to be generated.”
The real problem lies in the money that the worker earns each month to survive. The official warns that “the amount of the subsidy is 480 euros per month, and it also has no extraordinary payments. A very low amount.” Therefore, you have to decide between contributing more for retirement in exchange for lack of liquidity or retiring earlier, knowing that Social Security will apply coefficients that are forever.
To understand it better, the official gives an example of a worker who is two years away from his ordinary retirement age. In the first scenario, if the citizen requests early retirement, the amount of his pension could be set at 1,300 euros per month. In the second scenario, if the worker decides to wait two years until his ordinary age while maintaining the aid, his final pension would amount to 1,550 euros per month.
At first glance it might seem better to wait to collect a larger pension, but Muñoz invites us to “do the numbers.” If the person chooses to continue collecting the subsidy, during those two years they would receive a total of 11,520 euros, the result of multiplying the 480 euros by 24 months. On the contrary, if you opt for early retirement, you would receive a total of 36,400 euros during those same two years, resulting from multiplying the 1,300 euros by 28 months since “the pension does have extra payments.”
The short-term economic difference is overwhelming and shows that “with early retirement I would earn 24,880 euros during those two years.” The key to the matter is to calculate the amortization period, considering “how much time is needed to compensate for those almost 25,000 euros that were not collected” for having given up the extra 250 euros per month of the ordinary pension.
The calculation is simple and Alfonso divides the 24,800 euros difference by the 250 euros per month improvement, which gives a result of 99 months. The official concludes that “this means that the decision to opt for the subsidy would only begin to be economically profitable seven years after retirement.” By way of illustration, it details that if the retirement age is 65 years, compensation would begin at 72 years of age.
To take into account
So that each worker can apply this formula to their particular case, Muñoz recommends that “the correct way to do it is to request two retirement simulations.” One of them calculated at the ordinary age and another calculated two years earlier. With these figures on the table, the citizen can replicate the mathematical operation and make an informed decision.
Based on his extensive professional experience, the Social Security official offers some very valuable general guidelines and states that “as a general rule I will tell you that the midpoint of compensation, taking into account the average retirement pension in Spain, is around 9 years. That is, from the age of 75, is when it is economically compensated not to have brought forward our retirement.”
To determine what to do when there is less time left for legal retirement, the expert points out that “the quick conclusion is that the closer you are to ordinary retirement, the less the early retirement is worth, because the extra money you would collect becomes less and less.” As a summary, he advises that, if there are two years left, it usually pays to anticipate; If there is a year left, it depends a lot on the specific case and, if there are only six months left, it is usually better to wait.