What Is the Social Security Leveling Option?

Social Security leveling is a feature offered by some private pension plans that can make it possible to take an early retirement. While its name refers to Social Security, leveling does not affect your Social Security retirement benefits in any way. It's simply a way to supplement your income with pension plan benefits until you apply for and start receiving Social Security.

Leveling has two main requirements: you must be eligible to receive benefits from your employer's pension plan and you must provide your employer with a written estimated SSA benefit amount. Although the estimate usually is based on benefits available at age 62, some plans will accept an estimate of benefits available at full retirement age. This information is available online at the Social Security website or at your local SSA office.

Leveling attempts to balance out your monthly income before and after you reach your company's normal retirement age. It does this by temporarily supplementing monthly pension benefit payments by either a percentage or the full amount of your estimated Social Security benefit before you qualify to receive Social Security. Once you start receiving SSA benefits, monthly pension payments are permanently decreased by the amount of the supplement payment.

As an example, assume you want to retire early. A written estimate says you would receive SSA benefits of $1,200 per month at age 62 and you qualify for $2,000 per month in pension benefits. If your pension plan supplements 50 percent of the SSA estimate, you would receive $2,600 per month -- $2,000 from your pension and $600 in supplemental income -- from your pension plan until you reach retirement age. Once you start receiving SSA benefits, your monthly pension benefit would decrease by $600 and the monthly supplement would end. However, your income -- $1,200 in Social Security and $1,400 in pension benefits -- would remain the same.

Social Security leveling will not be an option if your early retirement pension benefit is less than your estimated Social Security benefit. In addition, if your company stops leveling at age 62 and you must then apply for Social Security, the amount you receive will be considerably less than what you would receive by waiting until full retirement age, and even greater than if you waited to apply until age 70.