Can Social Security Payment Be Reduced By Income Loss? (retired, manufactured, accident)
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I'm 61 and I recently took a 13% reduction in pay to keep my job. I'm not real unhappy with the figures I get from the Social Security site but I assume they are based on the idea that I keep earning what I have in the recent past? Will this 13% reduction with little chance to increase much impact my projected Social Security income? If so, does that mean I might benefit from retiring early, say at 63 to have less impact?
Thanks.
Also, by way of introduction since this is my first post in the forum. My wife and I live in Southwestern Georgia in a real nice manufactured home (2,300+ sqft) on 7.25 acres paying less than $800 a month (PITI) / 20 years. I am a retired US Army enlisted, no disablity (except a little nutty). We have no debt, bottom end good FICO (old BK). And finally a small growing 401K. We realize we're doing better than a lot of folks and are thanking the Lord for his blessings.
Hi OldSarge98. My husband is retired US Air Force.
Social Security Retirement benefits are calculated using your 35 highest years of income (on which Social Security was withheld). Past years are inflation adjusted for this calculation. If you already have 35 high-income years, then a reduction in your income won't matter. If you don't have 35 years already amassed, then, yes, your Social Security Benefit will be reduced. How much it will be reduced will be determined by how many years you worked at a higher rate because the calculation is based upon the average.
Also, I should add, that retiring early and filing for Social Security Retirement benefits prior to your full retirement age (FRA) reduces your benefit further. After FRA there is also a delayed retirement credit that is added to your Social Security Retirement benefit so the longer you wait to file (up to age 70) the more you get.
I just spotted the note "Your estimates are based on the assumption that you will earn $##,### a year from now until retirement" on the my Social Security site where it provides the three benefit amounts for 62, 66, and 70.
I did some quick spreadsheet comparisons considering that 13% loss in wages. If my figures are correct that reduction will impact my monthly benefit by a 2.3% reduction if I file and take benefits at 64. At 66 that increases to a 3.2% reduction working to NRA. We won't discuss figures for 70.
All in all I can make up that loss stuffing envelopes. Just kidding, that's a scam.
Social Security is going to use 35 years of income for their average. The income from prior years will be adjusted into "today's dollars". They have a table which shows the variables they use to do this.
If you don't have a total of 35 years, Social Security will use $0 in their calculation for each year that there is no income.
For example: Assume that Mr. Smith has worked a total of 30 years. Mr. Smith will have 5 years of $0 imputed into his 35 year average work history for Social Security purposes. Those $0's will reduce his average income. If Mr. Smith works an additional 5 years for $15K per year, the 5 $0's will be replace with 5 $15K. That would make his average income larger and he would receive a larger social security retirement benefit than if he stopped working after 30 years.
Example 2: Mr. Jones has worked 35 years for $50K annually. In his 36th year of work he takes a new job that only pays $15K. That new salary will not reduce his social security benefits because Mr. Jones already had 35 years of income higher than the $15K. Social Security will use the 35 highest income years so the $15K will not be included in their calculation.
Social Security is going to use 35 years of income for their average. The income from prior years will be adjusted into "today's dollars". They have a table which shows the variables they use to do this.
If you don't have a total of 35 years, Social Security will use $0 in their calculation for each year that there is no income.
For example: Assume that Mr. Smith has worked a total of 30 years. Mr. Smith will have 5 years of $0 imputed into his 35 year average work history for Social Security purposes. Those $0's will reduce his average income. If Mr. Smith works an additional 5 years for $15K per year, the 5 $0's will be replace with 5 $15K. That would make his average income larger and he would receive a larger social security retirement benefit than if he stopped working after 30 years.
Example 2: Mr. Jones has worked 35 years for $50K annually. In his 36th year of work he takes a new job that only pays $15K. That new salary will not reduce his social security benefits because Mr. Jones already had 35 years of income higher than the $15K. Social Security will use the 35 highest income years so the $15K will not be included in their calculation.
OTOH, if you had a couple of low income years (but still non-zero) in that high 35, current income this year and next might be greater than those low income years and so replace those non-zero low income years resulting in an increased social security benefit.
I believe "Your estimates are based on the assumption that you will earn $##,### a year from now until retirement" means they are figuring the benefit levels based on the most recent income/contribution level they have available. If in the mean time that income is reduced you have to factor that into the data.
In my case I have well over 35 continuous years of reported income so they've already replaced earlier lower earning years with their projection using my income level prior to the reduction. Replacing that projected income with the reduction I beleive will yield the figures I posted earlier. I'm sure I'll be able to verify my assumption when they recalculate based on last years reported income from the IRS. I'll post what I find when this happens.
Here is an example from my life. When I was younger I had a high salary. I was in a car accident before I accrued 35 years of work. This accident caused me to be unable to work in the career I had worked in prior to the accident and I was also unable to work for 10 years while I healed. So, for 10 years I had $0 figured into my average for Social Security purposes. My estimated Social Security retirement benefit dropped every year for each of those 10 years.
When I resumed working 11 years later, I started replacing the $0's with actual income. My estimated Social Security retirement benefit began to rise significantly every year.
When my husband retired after 35 years of working (at age 58) Social Security continued to add $0 income to his work record. However, those $0's were never factored into his Social Security Benefit because he had 35 higher years of income to be used instead in their equation. For these past 4 years his estimated Social Security Benefit has not been reduced even though he is no longer working. It has been minimally increased due to COLA.
Here is an example from my life. When I was younger I had a high salary. I was in a car accident before I accrued 35 years of work. This accident caused me to be unable to work in the career I had worked in prior to the accident and I was also unable to work for 10 years while I healed. So, for 10 years I had $0 figured into my average for Social Security purposes. My estimated Social Security retirement benefit dropped every year for each of those 10 years.
When I resumed working 11 years later, I started replacing the $0's with actual income. My estimated Social Security retirement benefit began to rise significantly every year.
When my husband retired after 35 years of working (at age 58) Social Security continued to add $0 income to his work record. However, those $0's were never factored into his Social Security Benefit because he had 35 higher years of income to be used instead in their equation. For these past 4 years his estimated Social Security Benefit has not been reduced even though he is no longer working. It has been minimally increased due to COLA.
Bada Bing! Retired at 59 and my projected age 70 benefit keeps going up by COLA
That is another benefit of not overdoing college and 'education'. If it takes 10 yrs to get a PhD and 2 years to find a job (meanwhile you do interning at low pay) you will be 30 before getting social security-worthy income. Then you will for sure need to work until 65 to get the best benefits.
Of course, you might be able to have many more extrinsic perks than the average bloke, like career satisfaction.
That is another benefit of not overdoing college and 'education'. If it takes 10 yrs to get a PhD and 2 years to find a job (meanwhile you do interning at low pay) you will be 30 before getting social security-worthy income. Then you will for sure need to work until 65 to get the best benefits.
Of course, you might be able to have many more extrinsic perks than the average bloke, like career satisfaction.
Good points and food for thought
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