Hello, I accepted an Early Retirement Incentive last year at age 53 and started collecting a pension. How does not working before you start collecting Social Security affect the payment? I plan to start collecting Soc Sec in 13 years. Should I return to work before a certain number of years to avoid a big drop in the payment? Also, I plan to work part time, how does working at a lower income affect the payment?
Your social security benefit is based on the 35 highest earning years in your work history. You can get your work history from the social security system (they may mail you a statement once a year or you can log into their system and download it.)
Suppose you worked continuously from age 18 to age 53, that's 35 years. If you take another job and earn more than your lowest year, the new earnings will replace the lowest year and will result in an increased benefit. If you made $5000 a year as a teen and can make $50,000 a year now, then each year you work will replace one of your bottom years and increase your benefit. On the other hand, if you take a small part-time job and the wages are less than the lowest year in your current history, that won't affect your benefit.
I don't have the formula to tell you exactly how much you can increase your benefit by working.
Hi Bethr1000, good day! Thank you for coming to the TurboTax Special Forum.
The amount of Social Security retirement benefits is based on:
•Lifetime earnings, and
•Age at time of retirement.
Higher lifetime earnings result in higher benefits. The highest 35 years are used to calculate average monthly earnings. Each year is indexed for inflation to approximate what earnings for that year would be in today’s dollars. Earnings for each year are also capped by the Social Security maximum earnings subject to Social Security tax for that year.
So to work or not before collecting Social Security depends on if the new earning can replace some of the lower earning years, or increase the earning years to 35.
You mentioned work part time/working at lower income. If you do not have 35 Lifetime earnings, this will help to fill the gap. If you already have 35 Lifetime earnings, this will not impact Social Security calculation, but you get extra income.
Hope this helps.
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Thank you for the details KochK! Some of my 36 years include High School jobs of under a few thousand dollars so if I work a part-time job even for $20,000 that would increase my average of top 35 income years correct? Also, it is not age of retirement but age you apply to collect Social Security, right?
There are 2 ways to bump your benefit.
For the age-based benefit, the longer you wait to take Social Security, the higher the payout will be, except that your maximum payout is at age 70. Delaying claiming social security after age 70 will not increase your benefit.
For the income-based calculation, your benefit is always based on your 35 highest earning years. Any time that you work (even after age 70 or after you have started taking social security) if you earn enough to knock out a low year and replace it with a new higher year, your benefit should be recalculated and increase.
I thought it was based on 40 quarters of paid with SS contributions employment which allows one to be eligible. My sister who was one quarter shy of 40 and eligible, got married and relied on her husbands generous pensions, so she never took a job to meet eligibility. That works out to 10 years (4 quarters x 10 years= 40 quarters) and 35 years of employment would be (4 times 35 years or 140 quarters) Did I hear it wrong as it makes it difficult for widows and widowers or stay at home caretakers house wives/ husbands to meet such long requirements to file for benefits in old age. Curious what the 35 represents, eligibility or a base. Period to calculate benefits? Thanks
You need 40 quarters in the system to be eligible. Once you are eligible, the actual amount of the benefit is based on the 35 highest earning years. Spouses who don’t work can also collect a benefit based on their working spouse, which is up to 50% of their spouse’s benefit.
By retiring at age 53 (voluntarily or involuntarily) you give up your highest income earning years to the tune of about 15 or more years.
This is detrimental to your social security situation at age 67 or later.
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