Work longer to fatten Social Security
Joel Dresang: Lisa, the National Bureau of Economic Research came out with a paper recently on retirement. It was eye-opening. It suggested that some people could benefit more from working just a little bit longer, rather than raising the rate at which they’re saving for retirement. Explain that.
Lisa Lewitzke: It has to do with your Social Security retirement benefits. So what the study found was that if you were in your mid-40s, and you find yourself to have not saved enough for retirement, that by pushing out your retirement date by just a few short months, it would be the equivalent of saving 1% annually for the last 10 years prior to retirement.
Joel: How does that work?
Lisa: Social Security is calculated based on your best 35 years of income, and it’s recalculated on a monthly basis. So, depending on your circumstances, if you’re making more money at the end of your career, it could offset some of those years where you weren’t making as much. So, by working that few extra months, or if you can push it, a few extra years, it could really end up paying off.
Joel: So this is about working longer to affect the calculation for your benefits, and that’s different from what we’ve talked about before, in how you can benefit from delaying when you claim Social Security.
Lisa: That’s right. So, as you delay your claim, your benefit will grow. Each year you delay that claim, you’re earning an additional 8%. So, whenever you do any kind of Social Security online calculator or call the Social Security office, most likely they’re going to tell you to wait until 70. And if you can’t wait all the way until 70, to at least wait until full age of retirement, which is between ages 65 and 67.
Joel: And a lot of people claim at the earliest age, which is at 62.
Lisa: Right, or at least right away when they stop working. And what you’re doing is, you’re locking in that loss of benefits. And so not only will that affect your Social Security payment that you get on a monthly basis, but it’s definitely going to affect the survivor or the spouse benefit as well. And, if you continue to work while claiming Social Security, Social Security is likely to be taxed as well. So, you really would be losing quite a bit.
Joel: So, it gets kind of complicated, and everybody has different circumstances, and requires different Social Security strategies, but we want to point out that people should save for retirement. You don’t necessarily control how long you can work.
Lisa: Well, absolutely. Even if you want to work until age 70, you might not be able to. You might get downsized, you might have a health problem come up, or you just might lack the willpower to work one more day. So, the most important thing is just to know how Social Security works so that you can make the most of it.
Lisa Lewitzke is a registered representative and investment associate at Landaas & Company.
Joel Dresang is vice president-communications at Landaas & Company.
Money Talk Video by Peter May and Jason Scuglik
Planning retirement via Social Security, A Money Talk Video with Lisa Lewitzke
Social Security: Know your options, A Money Talk Video with Lisa Lewitzke
When Should I …check my Social Security Statement?
A Social Security guide on when to start receiving retirement benefits
Benefits calculators, from the Social Security Administration
Frequently Asked Questions, from the Social Security Administration
“When to Take Social Security Benefits: Questions to Consider,” from the National Academy of Social Insurance
(initially posted July 1, 2018)
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