Ask Larry: Will Working Two More Years Increase My Social Security Retirement Benefit?

[MULTIZ321]

Ask Larry: Will Working Two More Years Increase My Social Security Retirement Benefit?

Ask Larry: Will Working Two More Years Increase My Social Security Retirement Benefit?

Today's column addresses questions about the ability to continue to earn Social Security credits, what counts as income regarding the Social Security earnings test, potential effects of Social Security taxes on benefits, disability benefits converting to retirement benefits and the GPO and WEP.

www.forbes.com

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Richard

 

[Conan]

That same Q and A article has a good explanation of WEP and GPO, which limit social security benefits for many government employees. The "Windfall Elimination Provision" and "Government Pension Offset" say in effect that if you didn't pay social security tax on those earnings, we're going to take away most or all of the social security you otherwise would have gotten from other earnings where you or your spouse did pay social security tax.

From the Q and A:
"[T]he Windfall Elimination Provision (WEP) can only affect benefits payable based on a person's own Social Security work history, specifically Social Security retirement or disability benefits. The Government Pension Offset (GPO) provision can only affect benefits payable based on someone else's Social Security work record, such as spousal or survivor benefits.

If your wife is receiving a public pension based on her earnings that were exempt from Social Security taxes, GPO would likely cause any Social Security spousal benefits that she would otherwise be due to be reduced by 2/3rds of the amount of her pension. That could potentially reduce her spousal rate to zero.

However, if your wife qualifies for her own Social Security retirement benefits, those benefits would not be reduced to zero because of WEP. Although WEP can cause a person's benefit rate to be lowered, it never reduces their benefit rate to zero. And since GPO doesn't affect a person's own Social Security retirement benefits, your wife should be able to draw at least some benefits as long as she has at least 40 quarters of Social Security coverage."

 

[simpsontruckdriver]

On the other hand, if a person right now is turning 65 and can't go back to work due to being fired (yeah a lot of companies won't hire someone close to retirement if they can get someone as experienced yet younger - they won't say it because it is illegal), they may find retiring at 65 is a better option and taking Medicare. If they were wise and saved a lot, their retirement income + SSA may be equal to their last position. The same thing happened in the Great Recession, people who were 65 back then decided retiring was better than having low income (Unemployment) and trying to find work when jobs weren't there. After all, why pay $500+/month for high deductible health insurance when Medicare is only $145 with $0 deductible (MAPD - or somewhat higher for a Supplement)?

TS

 

[DaveNV]

So I didn't really see where the article answered the title question. Maybe someone reading this can answer this for me:

Because of Covid-19, my spouse, (who is turning 60 in a few months), is electing to stop working now, two years before planned early retirement to take early Social Security at age 62. There will be no additional wages earned over the next two years, and we'll live on my retirement income. When starting to receive early Social Security at age 62, (presuming wages would basically be the same over the next 24 months if still working), the Social Security benefit would be the same, right? It goes on the 40 highest quarters of earnings right? In other words, it won't matter whether spouse works these next two years or not, correct?

Thanks,
Dave

 

[Conan]

Because of Covid-19, my spouse, (who is turning 60 in a few months), is electing to stop working now, two years before planned early retirement to take early Social Security at age 62. There will be no additional wages earned over the next two years, and we'll live on my retirement income. When starting to receive early Social Security at age 62, (presuming wages would basically be the same over the next 24 months if still working), the Social Security benefit would be the same, right? It goes on the 40 highest quarters of earnings right? In other words, it won't matter whether spouse works these next two years or not, correct?

40 quarter-years of wages is the threshold for SS eligibility - - if you don't have 40 quarters you get no benefit for the years you did work.

The actual benefit, once you do have 40 quarters, is based on the average of your best 35 years of wages. If you have fewer than 35 years of employment, they average in zeroes for the missing years. That average is used to derive the PIA (primary insurance amount) which is the monthly benefit you'll get if you work to normal retirement age, age 67 for most people not yet retired. [Note: The calculation that converts 35 year average to retirement age PIA is somewhat complicated and favors people with lower 35 year averages (and disfavors people with higher 35 year averages).

So by ceasing to work at age 60 and collecting at age 62, your spouse will have missed out on putting two or more possibly better years into the 35 year average, and the benefit checks will be 70% of the PIA number to make up for commencing benefits five years early, age 62 vs. age 67.

 

[DaveNV]

... based on the average of your best 35 years of wages.

So by ceasing to work at age 60 and collecting at age 62, she'll have missed out on putting two or more possibly better years into her 35 year average, and her benefit checks will be 70% of her age 67 PIA to make up for taking them five years early.

Thank you. More than 35 years of employment, and the last 25 of it with Costco. Wages have been "topped out" for a long time, so other than minimal COLA increases, there really haven't been any major increases in wages for awhile, and none are predicted. I haven't crunched the specific numbers, but given the reason for stopping to work now, vs. risking contracting the virus with quite likely fatal results, we'll take the hit. (A number of comorbidities, and a genetic predisposition to a severe lung disease that killed spouse's Mother and Uncle. Covid-19 can lead directly to that disease. Employment at Costco's Refund Desk puts my spouse immediately on the front lines for contracting the virus via interaction with Costco Members seeking a refund on merchandise that's been kept in their [contaminated] home. Retiring early is the smart option.)

Dave

 

[geekette]

I ran numbers years ago, playing around with What If I made 1 million for another 10 years. Made no difference. I think once you have your 35 years in, there isn't a whole lot of change possible.

Especially if you figure in value of life, stopping working now could be the best idea ever. There is always the possibility to make more money later. maybe not same wages, but, Something. Not for boosting SS, just daily income. And, one can suspend SS and pick it back up later.

 

[Conan]

That depends on how your 35-year history compares to the annual maximums (the taxable wage base) that were subject to social security tax. Here are the most recent 35 taxable wage base years. https://www.ssa.gov/OACT/COLA/cbb.html

Year​ Amount​ 1986​ $42,000​ 1987​ 43,800​ 1988​ 45,000​ 1989​ 48,000​ 1990​ 51,300​ 1991​ 53,400​ 1992​ 55,500​ 1993​ 57,600​ 1994​ 60,600​ 1995​ 61,200​ 1996​ 62,700​ 1997​ 65,400​ 1998​ 68,400​ 1999​ 72,600​ 2000​ 76,200​ 2001​ 80,400​ 2002​ 84,900​ 2003​ 87,000​ 2004​ 87,900​ 2005​ 90,000​

Year​ Amount​ 2006​ $94,200​ 2007​ 97,500​ 2008​ 102,000​ 2009​ 106,800​ 2010​ 106,800​ 2011​ 106,800​ 2012​ 110,100​ 2013​ 113,700​ 2014​ 117,000​ 2015​ 118,500​ 2016​ 118,500​ 2017​ 127,200​ 2018​ 128,400​ 2019​ 132,900​ 2020​ 137,700​

 

[isisdave]

The estimates they send you assume you'll keep the same income until retirement age, so don't rely on those.

They do describe in sufficient detail how the benefit is calculated, and there are calculators online to help. It's likely that two more years of good income would supplant a couple of years at the beginning of her career, so there would be some benefit to continuing but maybe not much. I think if you call them, they can work up a fairly accurate forecast.

 

[pedro47]

Thank you. More than 35 years of employment, and the last 25 of it with Costco. Wages have been "topped out" for a long time, so other than minimal COLA increases, there really haven't been any major increases in wages for awhile, and none are predicted. I haven't crunched the specific numbers, but given the reason for stopping to work now, vs. risking contracting the virus with quite likely fatal results, we'll take the hit. (A number of comorbidities, and a genetic predisposition to a severe lung disease that killed spouse's Mother and Uncle. Covid-19 can lead directly to that disease. Employment at Costco's Refund Desk puts my spouse immediately on the front lines for contracting the virus via interaction with Costco Members seeking a refund on merchandise that's been kept in their [contaminated] home. Retiring early is the smart option.)

Dave

I totally agreed with your spouse decision to retire early. Especially, with her job duties as a Costco Refund Desk. She will be OK. Plus, when she start drawing her Costco retirement plan. She will look back at her days at Costco and starting laughing with a big grin on her face.

 

[simpsontruckdriver]

Just so you know, unless he is disabled and on disability, Medicare is not available until 65. The only option is a Marketplace plan, unless the company offers a retirement health plan. Just like with Medicare, he can sign up for a Marketplace plan up to 30 days after his insurance ends, the new insurance may need written notice from the old insurance (they don't care why the person left, just need proof insurance is over). COBRA will probably be too expensive. So, plan that expense into early retirement.

TS

 

[turkel]

Social Security has a calculator that can give you an exact answer. I wish I could find the link.

I ran the calculator for myself last year. I am retiring at 54. I found that working even 5 more years didn’t move the needle significantly.

 

[DaveNV]

Plus, when she start drawing her Costco retirement plan.

Costco doesn't have a retirement plan. They offer a matching 401K Plan employees can pay into. We're not planning to touch that for as long as possible.

Medicare is not available until 65. COBRA will probably be too expensive. So, plan that expense into early retirement.

We're both on pieces of my military Tricare insurance. It's way better, and much cheaper, than what Costco offers. So no COBRA needed. Medicare will come along when it's time, but till then, Tricare carries things very well. When Medicare does kick in, Tricare Prime flips to Tricare For Life, covering part B and D, and becomes secondary payor, after Medicare pays.

Social Security has a calculator that can give you an exact answer. I wish I could find the link.
I ran the calculator for myself last year. I am retiring at 54. I found that working even 5 more years didn’t move the needle significantly.

I think we did that for us both a year or so ago, when my Social Security started, and that was when we decided my spouse could retire at 62, and we'd be okay. This COVID-19 wrinkle kind of tipped that idea on its head, but if we're careful, we can make it work for two years till spouse can start collecting Social Security at 62.

Thanks, everyone. I appreciate the input.

Dave

 

[5finny]

I have been told-but do not know for sure -that early years are given more weight in the calculation.
If that is true then current earnings would have to be even greater in order to be significant (after 35 years)

 

[Conan]

I think not, especially since you get no credit for earning more than the taxable wage base in any year, and that happened more often when the base numbers were low.

There are bend points in the formula that converts your 35 year average to your PIA, favoring people with lower averages, but your average is what it is.

 

[geekette]

I have been told-but do not know for sure -that early years are given more weight in the calculation.
If that is true then current earnings would have to be even greater in order to be significant (after 35 years)

No. If so, I'd be royally screwed, with wages earned as 15 yo. After I reached 35 years and those early ones started dropping off, it wasn't a big change. What counts is having 35 years, no 0s. The highest 35 years are used.

When you get estimates, as was said above, it is assumed that your wages will stay at your last-reported level. A friend of mine that had to go on disability said their estimate was indeed her monthly amount.

 

[Ralph Sir Edward]

If you want to seriously play games with your retirement Soc Sec, download the detailed calculator

Social Security Retirement Benefit Calculation

Retirement Benefit Calculation

www.ssa.gov

Then you can plug in all your information on your computer, and plug in future estimates and see what happens.

(I used it for years, to make my future estimates with.)

 

[5finny]

See this from social security

Social Security Retirement Benefit Calculation

Benefit Calculation Examples for Workers Retiring in 2025

www.ssa.gov