Ask Rusty – Should I Quit Work to Preserve My Social Security Benefit?

Dear Rusty: I recently took a big pay cut in my job. Several older friends have advised that I not continue to work much longer in this reduced-paying job because it will affect my Social Security when I get ready to start drawing it. I’m currently 62 and thought about working until around 65. Friends are advising that my SS check will be smaller due to the decrease in pay. I have tried calling my local and National Social Security office and can’t get anyone to answer the phones to see if this is true. I don’t want to take this pay cut only to work (maybe) 3 more years and take a lower SS benefit when I can retire now and draw a bigger SS check. Advice, please! Signed: Anxious About Social Security.

Dear Anxious: I think your well-meaning friends are causing you unnecessary anxiety because your Social Security benefit isn’t computed from your last several years of earnings. Rather it is your lifetime earnings which determine your base Social Security benefit, known as your Primary Insurance Amount” (PIA). Your PIA is what you get if you claim exactly at your full retirement age (FRA), which, for you, is 66 years and ten months. If you claim SS before your FRA, your benefit will be permanently cut (by about 29% if you claim at 62 and about 12% if you claim at 65).

Your PIA is computed using the highest-earning 35 years of earnings (adjusted for inflation) over your lifetime, and your most recent earnings would affect your SS benefit only to the extent they are among the lifetime 35 years used. If you don’t yet have a full 35 years of earnings, then to quit working now would hurt your SS benefit because SS always uses 35 years to compute your benefit, even if you don’t have a full 35 years of earnings. In that case, they would use “zero” earnings for enough years to make it 35, and those zero-earning years would mean a smaller benefit. So even if your recent earnings are lower than before, they are still more than the $0 that SS will use if you don’t have at least 35 years, so those lower earnings will help your SS benefit not hurt it.

The bottom line is this: your actual SS benefit won’t be cut just because you now have lower earnings; rather, your benefit will be based on your highest-earning 35 years over your lifetime. But any benefit estimate you now have assumed you would continue to earn at your most recently reported level until you reach your FRA. So, whether you stop working now or take a lower salary, your actual benefit when you claim will be less than your recent estimate from Social Security. Note too that it is a common misconception that SS benefits are based on the last ten years of earnings, but that is incorrect. Your benefit amount will be computed using your average monthly earnings over your lifetime (the 35 years in which you earned the most, adjusted for inflation).

This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation, and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email us at [email protected].