What If I Want To Work In Retirement
Sometimes leaving the workforce is neither feasible nor appealing. Thats why some retirees find part-time jobs to pass the time or earn extra money. Getting a part-time job after retiring early may reduce your benefit amount until you reach full retirement age. The SSA may withhold a certain amount of money from your benefit check if your earnings exceed the annual limit. For 2022, your benefits will be reduced by $1 for every $2 you earn above $19,560.
If youll reach your full retirement age in 2022, your benefits will be reduced by $1 for every $3 you earn above a different limit up until the month you turn 67. For comparison, benefits were reduced in 2020 by $1 for every $2 earned above $18,240 and reduced by $1 for every $3 earned above $48,600 for those who reached full retirement age that year.
The SSA doesnt penalize working retirees forever. Youll receive all of the benefits the government withheld after you reach your full retirement age. At that time, the SSA recalculates your benefit amount.
You Can Start Collecting Benefits Before Your Full Retirement Age
You can’t begin collecting your Social Security benefits at age 45 , but you can collect before your full retirement age. The earliest age you can start receiving your benefits is 62 full retirement age is 67 for anyone born in 1960 or later.
You must have 40 credits to be eligible for Social Security benefits. Credits are earned when you work and pay Social Security taxes. On average, it takes around 10 years of working to earn 40 credits.
If you choose to start receiving your benefits early, your monthly payments will be reduced by 30% .
Dont Take Early Retirement If You Are Disabled
Are you considering Early Retirement, because of A Disability? STOP!
Social Security Disability could pay you full benefits.
If you have worked long enough, and paid enough Social Security taxes on your earnings, you are covered by Social Secret Retirement and Social Security Disability. Social Security will reduce your benefits if you retire early. Calculate the effect of early retirement on your benefits. Please contact me if you live in my service area and your health is making it difficult to continue at your work. Your Social Security retirement benefits will not be reduced if you are found to be eligible for Social Security Disability before your retire.
If you are disabled and approaching retirement age and have not yet filed for retirement benefits, call me if you live in Hampden County MA or North Central CT.
If you live in Hampden County, MA or in Suffield, Enfield or Somers, CT, and you have not yet taken early retirement, I can explain how Social Security Disability regulations apply to your claim, if you are not able to continue working.
If you live outside my service area and you are disabled and approaching retirement age and you have not yet filed for retirement benefits, you may call Attorney Avram L. Sacks of Skokie, Illinois at 206-0276.
Early Retirement reduces your income for the rest of your life!
A Your question requires an answer from a disability attorney in your state, who understands the details of your case.
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Calculate My Social Security Income
These days thereâs a lot of doom and gloom about Social Securityâs solvency – or lack thereof. And regardless of whether you think Social Securityâs future is secure, the fact remains that you shouldnât plan on living exclusively off your Social Security benefits. After all, Social Security wasnât designed to make up a retireeâs entire income.
Still, many people do find themselves in the position of having to live off their Social Security checks. And even if you have other income sources in retirement, Social Security can make up a significant part of your retirement income plan. That’s why itâs important to know all the rules surrounding eligibility, benefit amounts, taxation and more.
Your Social Security Benefits Could Be Reducedtemporarily
Your age matters here, as we’ll see below, but any reductions that do occur are temporary. The Social Security Administration will eventually recalculate your benefit and give you credit for months when you didn’t receive a benefit, thereby boosting your future benefit. So, don’t let a temporary reduction in payments keep you from returning to work. Here’s how the age rules work:
If you haven’t yet reached your full retirement age between 66 and 67 for people born in 1943 or laterworking could mean temporarily giving up $1 in benefits for every $2 you earn above the annual limit .
Here’s an example of how that might look:
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What If I Take Benefits Early
If you choose to take your own Social Security benefit before your full retirement age, be aware that the benefit is permanently reduced by five-ninths of 1% for each month. If you start more than 36 months before your full retirement age, the worker benefit is further reduced by five-twelfths of 1% per month for the rest of retirement.
For example, lets assume you stop working at age 62. If your full retirement age is 67 and you elect to start benefits at age 62, the reduced benefit calculation is based on 60 months. So, the reduction for the first 36 months is 20% and then another 10% for the remaining 24 months. Overall, your benefits would be permanently reduced by 30%.
Social Security Benefits Formula 2023
The Social Security formula for the year 2023 — which applies to anyone born in 1961 — is as follows:
So for example, if your AIME was $3,000, you would do the following:
In the formula above, $1,115 and $6,721 are known as the bend points. These are the only parts of the Social Security benefits formula that change from one year to the next. You can find the bend points for any previous year on the Social Security Administration website.
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Scenario : Full Retirement Now = $2447/month At 67
If I stop working now and have no more earned income, my benefits would be $2,447 when Im 67. This is the green dot on the chart below. Im getting very close to the second bend point.
This PIA is relatively low here because I have 8 years with no earnings. Remember, I only have 24 earning years up until today. The AIME calculation sums up your highest 35 earning years and averages them out. The 11 zero earning years drag down the average.
- Mrs. RB40s will receive $1,774/month at 67 in this scenario . She is about halfway to the second bend point.
Social Security Calculation Step : Aime Calculation
Now, all you have to do is extract the highest 35 years of indexed earnings.
If youre still working and dont have 35 years, youll need to estimate what your future earnings will be and apply the indexing factors just as you would for actual historical earnings. This is where you can start to play around with the numbers to see the various impacts of retiring early, or working later or maybe having variable earnings close to retirement.
Once you have your highest 35 years in the last column, you just need to sum them up and divide by 420. You divide by 420 because thats the number of months in 35 years and we need to get your average earnings expressed as a monthly number.
Once you do this, congratulationsyou have your AIME and have finished the first step of the calculation. Its downhill from here.
NOTE: If you die before accumulating 35 years of earnings, there is an alternate calculation. See my article If You Die Early: How To Calculate Social Security Survivors Benefits.
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Who Can Use The Retirement Estimator
You can use the Retirement Estimator if you have enough Social Security credits to qualify for benefits and you are not:
- Currently receiving benefits on your own Social Security record.
- Waiting for a decision about your application for benefits or Medicare.
- Age 62 or older and receiving benefits on another Social Security record.
- Eligible for a Pension Based on Work Not Covered By Social Security.
If you are currently receiving only Medicare benefits, you can still get an estimate. For more information, read our publication Retirement Information for Medicare Beneficiaries.
If you cannot use the Retirement Estimator or you want a survivors or disability benefit estimate, please use one of our other benefit calculators.
You Can See Your Estimated Monthly Retirement Amount Online Now
If you’re interested in seeing your estimated monthly Social Security benefits amount based on your current work history, it’s quick and easy to do. You’ll need to create a My Social Security account online.
Even if you’re still 20 or more years away from retiring, you can see an estimate of how much you could get based on last year’s income and previous years worked. You’ll see a table that shows your monthly benefit amount for retiring early, on time or delayed.
When you’re ready to collect your benefits, you can also use My Social Security to fill out a retirement application, among other things.
You’ll Get More Money If You Wait To Cash In On Your Social Security
You likely know that if you wait until full retirement age to collect your Social Security benefits, you’ll receive 100% of your benefits. But if you decide to wait until age 70 to retire, you’ll get even more money.
Your benefits will increase by a percentage for each month you delay receiving your benefits past full retirement age up to age 70. If you were born in 1960 or later and wait to start receiving Social Security benefits until age 70, you’ll get 124% of your benefits.
You can get more money if you wait to retire.
How To Calculate Social Security Benefits In Excel
If you are in your late 50s and approaching retirement, you can create a useful model of your future benefits. It works best to do this in a Microsoft Excel spreadsheet, as follows:
- Using a recent Social Security statement, list in spreadsheet column A your taxable Social Security earnings year by year.
- List in column B the most recently published NAWI adjustment factors as published by the SSA.
- Multiply columns A and B and output the result to column C.
- Identify in column D the 35 highest values in column C. Add these together and divide the sum by 420 . This will approximate your AIME.
- Use the most recently published bend points to convert your AIME into a PIA.
You also can fill in hypothetical values for estimated taxable Social Security earnings in future years until you plan to stop working. To be conservative, use a NAWI adjustment factor of 1.0000 in column B for all future years.
A financial advisor who fully understands this process can help verify your calculations, advise you on when to start Social Security benefits, and estimate the future benefits you can expect to receive.
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How A Social Security Break
Figuring out the right time to start taking Social Security benefits isnt always a straightforward process. A Social Security break-even calculator can help you get some perspective on the numbers so you know what you stand to gain or lose by taking benefits earlier versus later.
Social Security break-even calculators help you find the best age to start taking retirement benefits. They do this by comparing your cumulative Social Security retirement benefits paid at age 62, your full retirement age and at age 70 and estimating how long it would take the benefits paid at age 70 to break even with benefits paid to start at age 62.
Heres a simple calculation to give you an idea of how a Social Security break-even calculator works. Say that you have the option to begin receiving $1,200 a month in benefits at age 62. Youd receive $1,700 in benefits if you wait until full retirement age at 66. Or you could receive $2,200 a month in benefits by delaying them until age 70.
The break-even point represents when the cumulative benefits even out. So if you wait until age 70 to start taking benefits, it would take you until age 79 to break even with the benefit amount youd receive if you started taking them at age 62. If you were to start receiving benefits at age 66, it would take you until age 75 to break even with the benefits youd receive if you started them at 62.
Why Do I Need To Know How To Calculate My Social Security Benefits
So you may be thinking, Why do I need to know how to calculate my own Social Security benefits? After all, the SSA will give me an estimate at any time.
Thats true! You can go to your My SSA account online and see an up-to-date copy of your benefits estimate. So why would you need to know how to do this calculation on your own?
Its important for a few reasons.
First, it never hurts to understand the mechanics behind an income stream thatll probably be a large part of your overall retirement income.
Secondly, your benefits estimate from the Social Security Administration is probably wrong. This is because their estimation methodology has two serious flaws: 1) They assume your future earnings wont increase2) They use todays social security formula
This means that these estimates are less accurate for younger workers but more reliable for workers who are close to retirement.
So, understanding how to do this calculation is especially important if you plan to retire early or later than normal or if you have a significant earnings change in the last few years of working.
To do this calculation, there are only four steps.
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Retiring Early Before 35 Years Of Work History
For those who dont even have 35 years of historical income, though, the effect of retiring early can be even more substantial. For instance, if the individual above had been aiming to retire even earlier, then the reality is that social security early retirement age 55 likely doesnt even have 35 years of earnings history. As a result, the additional projected years of working through full retirement age would both fill out the remainder of the highest 35 years, and replace lower earning years with new higher years. The exclusion of both if retirement occurs early can be substantial.
As the chart above shows, projected Social Security benefits would include 8 more years of $125,000/year earnings to complete the 35-year earnings history, and the subsequent 8 years would further increase AIME by overriding 8 early years that were at lower income levels. As a result, projected Social Security benefits would be $2,854.42/month based on an AIME of $9,885.71/month . However, if the individual actually retires at age 50, and simply locks in the benefits hes actually earned, the 35-year AIME would be only $8,220.24, and Social Security retirement benefits would actually be just $2,606.21/month, not $2,854.42 as projected with continued work!
How To Calculate The Impact Of A Benefit Cut
Covisum, a provider of Social Security claiming software, recently updated its calculator to reflect the Social Security trustees latest projections. That includes a free version for consumers and a more complex paid version for financial advisors.
Another product, Maximize My Social Security, lets consumers evaluate which claiming strategy might best suit them for a $40 annual fee. It also has a separate version for financial advisors.
The free Covisum calculator can help individuals do a quick calculation based on their benefits alone and some key facts year of birth, full retirement age benefit amount, percentage of the benefit cut and the year that benefit cut occurs.
So someone turning their full retirement age this year, for example, can calculate the effect of a 23% reduction in benefits starting in 2034, as well as the effect of no benefit cut.For each scenario, the calculator will show the value of claiming either at age 65 or age 70, and when beneficiaries stand to get the maximum amount possible from the program.As beneficiaries live longer, the value of waiting to claim until 70 goes up, as demonstrated in the difference in total benefits per the tools calculations.
To be sure, the free calculator is just a starting point when it comes to getting a sense of the trade-offs when claiming Social Security, according to Joe Elsasser, founder and president of Covisum.
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Planning For The Impact Of Early Retirement On Social Security
Its important to remember that beyond Just the impact of retiring early on the calculation of projected benefits, that taking Social Security early can reduce benefits by more than 25%, due to the reduction on Social Security benefits claimed before full retirement age.
However, many prospective retirees can ameliorate this impact by simply retiring early, and waiting to actually begin Social Security benefits, simply spending down other assets in early retirement instead .
Yet as shown here, early retirement has a second effect it reduces the calculated Social Security benefit too, or at least fails to accrue more benefits by continuing to work , even if the retiree waits until full retirement age to actually begin the benefits.
However, the actual magnitude of the reduction will depend heavily on what the early retirees recent income is, relative to that individuals earnings history . Which means the starting point is just to log into your account at the SSAs My Social Security website, and look up what your earnings history actually is!
Its also important to determine whether the average historical earnings would put the individual into the 90%, 32%, or 15% replacement rate tier, as the lower the AIME, the higher the replacement rate, and the greater the impact that additional earnings years will have .