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How Working Longer Affects Your Social Security Benefits

Since 1935, Social Security has been synonymous with retirement. It was always intended to supplement retirement income, never be a person’s total retirement income. Unfortunately, according to the Center on Budget and Policy Priorities, about half of older Americans rely on Social Security for at least 50% of their income, and 25% of retirees rely on it for 90% of their income. That’s why more Americans are choosing to work longer.

For decades, labor force participation at older ages has been declining. But today, Americans aged 62-65 are participating at the highest rate since the government began collecting labor force data almost 60 years ago. Those over 65 are twice as likely to be working today as 65-year-olds in 1985.

The length of time you work definitely has an impact on how much Social Security you’ll receive. For example, if you retire early, and begin receiving Social Security between age 62, which is the earliest you can file for benefits, and your Full Retirement Age (FRA) you’ll receive a permanently reduced Social Security payout. If you work until your FRA, you’ll receive the full amount. And between your FRA and age 70, you get a higher benefit.

The reason for the higher Social Security check is because of delayed credits. It’s a bonus for waiting past your Full Retirement Age to begin receiving your benefit. Delayed credits mean your check goes up by approximately 8% each year you wait past your Full Retirement Age. But delayed credits stop at age 70, so there’s no reason to wait past then to begin collecting Social Security.

The last years of someone’s working career are generally their highest earning years. Working longer can potentially bump up your earnings history, giving you a higher check. Social Security calculates your monthly benefit by using your 35 highest-earning years. As long as you keep working and paying into Social Security, even if you work past 70 when delayed credits stop, your earnings record will keep being updated. If the money you make in later years outweighs what you made earlier, your benefits will increase accordingly.

There may even be an advantage to your spouse if you work longer. For example, your spouse can receive a Social Security Spousal benefit equal to 50% of the amount you’re eligible for at your Full Retirement Age. Even if you work longer than that, the Spousal benefit never receives the advantage of your delayed credits. But if you work past FRA and die, your spouse is eligible for the Social Security Survivor benefit which is equal to 100% of what you were receiving at the time of your death including any delayed credits you earned.

What if you retired early but now want to delay benefits and earn delayed credits to get a bigger check? You can “unretire” within limits. If you change your mind within 12 months of starting your Social Security, you can request a withdrawal of benefits and take them later when you qualify for a larger benefit. There’s a caveat though — you’ll have to repay all the benefits you and any family members received. If it’s been longer than a year since you started receiving your benefits, you’ll have to wait until your full retirement age to ask for a suspension of benefits.

The size of your Social Security check isn’t the only deciding factor when thinking about how long you’ll work. Other questions to ask:
• Are you willing to accept a permanently reduced Social Security benefit if you retire before your Full Retirement Age (FRA)?
• Can you wait until your Social Security FRA to receive 100% of your Social Security benefit?
• Will you retire at 65 when you’re eligible for Medicare?
• Can you wait until 70 to draw Social Security when you’ve received all the delayed credit increases possible for waiting past your FRA?
• Are you healthy?
• Do you enjoy your job?
• Do you have enough money saved for retirement?
• How much money do you owe or are you debt free?
• What’s your family’s longevity history? How long did your ancestors live?

Deciding how long to work is not always an easy decision, but when it comes to Social Security, it’s one that can affect you for a long time.

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