You’ve worked for decades. Now it’s almost time to kick back and start tapping Social Security. Just don’t stumble at the finish line.
Here’s this week’s question:
My husband has been working on his job for almost 30 years and is eligible to retire and draw his retirement from them. He will be 58 years and 8 months old at time of retirement.
He is planning to get another job to work until he can draw his Social Security. So the question is: If he gets a job making less money than his current job, how will that affect the amount of Social Security payments he’ll get when he is old enough to get it? Is there something he needs to do so that his amount of payments from the Social Security will not be smaller payments?
Thank you so very much. I always look forward to your emails and learn a lot from them. — Sandra
Sandra is afraid that by taking a lower-paying job, her husband may receive lower Social Security payments when he retires. That’s a logical fear, but actually the reverse may be true. If he hasn’t yet worked 35 years, his Social Security payments will be higher as a result of his new job.
Here are seven things about Social Security everyone should know:
1. Work at least 35 years
Social Security benefits are calculated based on your 35 highest-earning working years. If you work fewer years, you’ll have years with zero income averaged in — which will lower your payout.
2. Make as much as you can
If you experience a jump in salary, you’ll likely boost your future earning potential and may see an increase in your Social Security payments down the road because, as just explained, Social Security takes into account the 35 top-earning years of your career.
3. Wait until full retirement age to claim Social Security
You can begin collecting Social Security benefits as early as age 62, but you might not want to: If you do, your benefit will be reduced by 25 percent for life. To get your full payment, wait until you reach full retirement age – 66 for anyone born between 1943 and 1954. For those born between 1955 and 1959, the age gradually rises toward 67. For those born in 1960, it’s 67.
4. Better yet: Wait until age 70
If a part-time job will provide enough income to allow you to wait until age 70 to claim Social Security benefits, it’ll pay off.
Thanks to what the Social Security Administration calls “delayed retirement credits,” benefits increase 8 percent each year you delay tapping into Social Security — up until age 70. So waiting until you reach 70 means about a third more income per month.
For those who consider this strategy, it’s particularly beneficial for the higher-earning spouse in a marriage to hold out until age 70 to increase the total benefits the couple will receive. In the event that the spouse with the higher benefit passes away, the surviving spouse will receive a higher survivor benefit.
5. Use online tools
If you’re unsure about the best time to claim benefits based on your individual budget, health, life expectancy or other factors, use online resources to help you decide. A good place to start is SocialSecurity.gov/MyStatement, where you’ll get your personalized statement. This estimates what your benefits will be at age 62, at full retirement age, and at age 70.
Once you get estimates for both you and, if applicable, your spouse, there are other online tools that compare your benefits under various scenarios to help you determine the best claiming strategy. Consider AARP’s Social Security Benefits Calculator or Analyze Now’s Strategic Social Security Planner.
There are also a handful of companies that provide a personalized analysis of various claiming strategies. While most charge around $50, a company we partner with, Social Security Choices, sells its product for $39.95. But Money Talks News readers can do even better. Use the coupon code “moneytalks” and you’ll get a $10 discount from the usual price, so you’ll only pay $29.95.
I got one of these reports, and it was really interesting. It revealed that, in order to maximize the lifetime Social Security benefits my wife and I could receive, I should start drawing at age 69. There’s no way I could have figured that out on my own, and the result is potentially thousands of dollars more in benefits.
6. Taking early retirement? Beware outside income
If you work while taking Social Security before reaching your full retirement age, your Social Security payments will be docked — temporarily. After you reach full retirement age you’ll start getting your full checks.
For example, say you turn 62 this year and start taking Social Security. Your full retirement age is 66. Your benefit would be reduced by $1 for every $2 you earned in gross wages or net self-employment income over $15,720. So if you earned $20,720, or $5,000 more than allowed, your benefit would be reduced by $2,500.
After you reach full retirement age, you get your full benefit no matter how much you earn.
Learn more about income limitations here.
7. Do your due diligence
Always read your Social Security statements (either received as paper statements in the mail or online at SocialSecurity.gov/MyStatement) to be sure everything has been reported correctly. Although inaccuracies are uncommon, some scenarios lend themselves to a greater chance of error — such as a name change your employer failed to update on company records.
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The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.
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I founded Money Talks News in 1991. I’m a CPA, and over the years I’ve also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate. Got some time to kill? You can learn more about me here.