AMAC Certified Social Security Advisor Russell Gloor, Association of Older American Citizens
Dear Rusty: I recently got a big pay cut at work. Several older friends have advised that I won’t be working in this low paying job much longer because it will affect my Social Security when I’m ready to sign it. I am currently 62 and thinking of working until about 65. Friends advise that my SS check will be smaller because of the pay cut. I’ve tried calling my local and state Social Security office and can’t get anyone to pick up the phones to see if this is true. I don’t want to take this pay cut just to work (maybe) another three years and take a lower SS benefit if I can retire now and pull a bigger SS check. Advice please! Signed: Concerned about Social Security
Best anxious: I think your well-meaning friends are causing you needless anxiety because your Social Security benefits aren’t calculated based on your last years of earnings. Rather, it is your lifetime earnings that determine your basic Social Security benefit, known as your primary insurance amount” (PIA). Your PIA is what you get when 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 benefit will be permanently reduced (by about 29% if you claim at 62 and about 12% if you claim at 65).
Your PIA is calculated based on the highest earnings of 35 years (adjusted for inflation) over your lifetime, and your most recent earnings would affect your SS benefits only to the extent they belong to the 35 years in use. If you haven’t had 35 years of pay yet, then quitting working now would actually hurt your SS benefits because SS always uses 35 years to calculate your benefits, even if you don’t have a full 35 years of earnings. . In that case, they would use enough years of “zero” income to turn 35, and those zero-earning years would mean a smaller benefit. So even if your recent earnings are lower than before, they’re still more than the $0 SS will use if you’re not at least 35 years old, so those lower earnings won’t hurt your SS benefit.
The bottom line is this: your actual SS benefit will not be reduced just because you are now on a lower income; instead, your benefit is based on your highest income for 35 years during your lifetime. But any benefit estimate that you now assumed would continue to earn at your most recently reported level until you reach your FRA, so whether you stop working or simply take a lower salary, your actual benefit when you claim will be lower. than your recent Social Security estimate. Also note that it is a common misconception that SS benefits are based on the last ten years of earnings, but that is incorrect. Your benefit is calculated based on your average monthly income over your life (the 35 years in which you earned the most, adjusted for inflation).
READ ABOUT NEWS AND EVENTS HERE.