How will working or not working affect my Social Security?

Will Social Security be affected if I work longer, or quit earlier than full retirement age? This question comes up a lot whenever I speak on Social Security strategies, as I did last night at Mt. Prospect Library. As with most things about Social Security, it’s not a snap answer, and it depends on your personal situation. But here’s some pointers.

Situation #1

You’ve been out of the workforce for a number of years: being a stay at home parent, going back to school, taking care of an elderly family member, working for free in a family business.  Can you improve your Social Security benefit by resuming work?

Answer: yes, probably. Social Security benefits are based on your past 35 years of working. So if many of those years are zero, but you can work for 5 or 10 years, or up to 70, you’re going to replace some of those zeros with actual earnings. Obviously, the higher those earnings years are, the more impact they’ll have on the overall average. You’re probably not going to raise it enough to ever collect the maximum possible benefit, but there will be some improvement. Worth it!

Situation #2

You’d like to retire from full time work early (say, 62) but still work part-time with far lower earnings, or none at all. Will this hurt your Social Security benefit?

Answer: probably not much, if at all. It’s true that your Social Security projected benefit assumes that you will work until your full retirement age (66-67, depending on your birthdate). However, if you have 30-35 years of a solid earnings history, a few years of lower paying work won’t affect the average much, especially if you have any very low paying years already (like when you were a kid or 20-something). Even part-time, you may be making more than you made bagging groceries at 17 (even if your part time job at 62 is…bagging groceries). Even though your past historical earnings are indexed to account for changes in average wages since, your wages after 62 are accepted at their face value.

Want to play around with this a little? Try the Social Security Retirement Estimator or the AARP calculator. Or, as part of working with you on a retirement plan, I can try out a few different projected earnings scenarios for you and show you how to project and maximize your benefits, and how these payments affect your overall retirement income strategy.

About the author

Danielle L. Schultz, CFP®, CDFA

Danielle L. Schultz, the principal financial planner of Haven Financial Solutions, is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a NAPFA-registered Financial Advisor, and a Registered Investment Advisor in the State of Illinois. She studied financial planning at Northwestern University’s Certified Financial Planner™ certification program. She also holds a Series 65 license (Registered Investment Advisor Representative) and a CCPS (Certified College Planning Specialist).

She writes a regular column for Better Investing magazine and is currently working on a revision of their mutual funds handbook. In addition to academic training and professional experience, Ms. Schultz has personally managed Social Security, Medicare, retirement and long-term care issues; college funding concerns; and cash flow and transition planning in self-employment and divorce situations. Her social work background gives her an innovative perspective on financial planning issues; for her, financial planning is not only about money, but also a key component in a satisfying and well-lived life.

Leave a Reply

Copyright 2014   About Us   Contact Us   Our Advisors       Login