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Today’s question comes from Tom:
“If I wait until age 70 to apply for Social Security but at age 67 change to a part-time position that pays much less than my current position, how will that affect my Social Security when I sign up at age 70?
I earn $50,000 a year at my full-time job in a large city in Florida which has a high cost of living. I plan on moving at age 67 to a rural small town in the Carolinas. By selling my home and buying a less expensive home, I will have a nice nest egg.”
An overlooked downside of working part time
Tom, your decision to move to part-time work at 67 is unlikely to have a big effect on your Social Security benefits when you claim at 70, but it depends on your work history.
Let’s take a simple case first. Your Social Security benefits are based on your 35 highest years of earnings. If you have been working full time since you were 32 years old, these will probably be your 35 highest years of earnings. Any part-time work you do in the next few years will not be included in the calculation of your benefits.
Furthermore, by waiting until age 70, your benefits will be 24% higher than they would have been if you had taken benefits today at 67.
On the downside, you will continue to pay Social Security payroll taxes, but these new taxes will not add to your benefits. In fact, you will have to pay payroll taxes whenever you work in covered employment. This is the case even when you are receiving benefits.
How do you know what your 35 highest years of earning are? The best way to find out is to set up an account at the My Social Security page of the Social Security Administration website. There, you will be able to see your earnings history. If you have worked for fewer than 35 years, any work you do in the future will increase your benefits.
In the calculation of benefits, zeros are entered in any years where there is less than 35 years of work experience. For example, if someone works for 30 years, five years of “zeros” are entered in the calculations.
Unfortunately, just looking at your earnings history does not tell you the entire story. In doing the benefit calculation, your earnings are adjusted for inflation, and this does not appear in the earnings table.
Suppose you started work in 1984 and earned $10,000 that year. The adjustment factor for 1984 is 3.12. When the benefit calculation is done, these earnings will be entered as $31,200. If you want to see the adjustment factors for other years, you can find them here in an SSA publication. This may be useful if you want to check and see if any future earnings will be substituted for past earnings in the calculation of your benefits.
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The questions I’m likeliest to answer are those that will interest other readers. So, it’s better not to ask for super-specific advice that applies only to you.
I hold a Ph.D. in economics from the University of Pennsylvania and taught economics at the University of Delaware for many years. I now do the same at Gallaudet University.
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Disclaimer: We strive to provide accurate information with regard to the subject matter covered. It is offered with the understanding that we are not offering legal, accounting, investment or other professional advice or services, and that the SSA alone makes all final determinations on your eligibility for benefits and the benefit amounts. Our advice on claiming strategies does not comprise a comprehensive financial plan. You should consult with your financial adviser regarding your individual situation.
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