Social Security Matters – Do I have to stop working to keep my Social Security benefits?
By Rusty Gloor, National Social Security Advisor to the AMAC Foundation, the nonprofit arm of the Association of Mature American Citizens
Dear Rusty: I recently suffered a big pay cut in my job. Several older friends have advised me not to continue working longer in this low-wage job as it will affect my social security when I’m ready to start drawing it. I am currently 62 and thought I would work until about 65. Friends tell me my SS check will be smaller because of the pay cut. I have tried calling my local and national Social Security office and no one is answering the phones to see if this is true. I don’t want to take this pay cut just to work (maybe) 3 more years and get a lower SS benefit when I can retire now and draw a bigger SS check. Advice please! Signed: Concerned about social security
Dear anxious: I think your well-meaning friends are causing you unnecessary anxiety because your Social Security benefits are not calculated from your last years of earnings. Rather, it is your lifetime income that determines your basic Social Security benefit, known as the Primary Insurance Amount (PIA). Your PIA is what you get if you claim exactly at your Full Retirement Age (FRA) which, for you, is 66 years and 10 months. If you claim SS before your FRA, your allowance will be permanently reduced (by around 29% if you claim at 62 and around 12% if you claim at 65).
Your PIA is calculated using the highest 35 years of earnings (adjusted for inflation) in your lifetime, and your most recent earnings would only affect your SS benefit to the extent that they are part of the 35 years of life used. If you don’t have 35 full years of income yet, then stopping work now would actually hurt your SS allowance, as SS still uses 35 years to calculate your allowance, even if you don’t have 35 full years of income. . In this case, they would use “zero” earnings for enough years to reach 35, and those years without earnings would mean less benefit. So even if your recent income is lower than before, it is still higher than the $ 0 SS will use if you are not at least 35, so that lower income will help your SS profit not hurt it.
The bottom line is this: your actual SS benefit will not be reduced just because you now have lower income; instead, your benefit will be based on your highest earnings for 35 years in your lifetime. But any benefit estimate you now assume you’ll continue to earn at your most recently stated level until you reach your FRA. Social Security estimate. Also note that it is a common misconception that SS benefits are based on the last ten years of earnings, but this is incorrect. Your benefit amount will be calculated based on your average monthly earnings over your lifetime (the 35 years you earned the most, adjusted for inflation).
This article is intended for informational purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of AMAC Foundation staff, trained and accredited by the National Social Security Association (NSSA). The NSSA, the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other government entity. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or write to us at [email protected].