Dear Rusty:

I recently retired after more than 40 years in the construction industry. I’m 60 years young and my wife and I recently moved south to enjoy retirement in a new and milder environment. At this point, we do not plan on receiving my SS benefit until I reach my full retirement age of 66 and 8 months. In my 2018 statement, the Estimated Benefits Section, it states “You have enough credits to qualify for benefits at your current earning rate. (If you continue working until your full retirement age of 66 years and 8 months your payment will be ….).” Then it shows an amount for my full retirement age, age 70 & age 62. My question is, if I don’t work from now to my full retirement age will that significantly reduce my SS benefit rate that is quoted on my statement? Signed: Retired early

Dear Retired:

Congratulations on your retirement! The estimated benefits shown on the statement you received from Social Security are just that - estimates. But they make a critical assumption which will, indeed, make a difference in the actual amount of your benefit when you finally claim it.

Those estimates assume that you will continue working at your current income level until you reach your full retirement age (FRA). But since you retired from work at age 60 your actual benefit (assuming you continue without working) will be less than the current estimates you have from Social Security. Whether the reduction will "significantly reduce” your benefit depends on your actual earnings in the 35 years used to compute your benefit when you claim.

Your benefit is determined by adjusting for inflation all your lifetime earnings as reported to the IRS (but only up to the annual payroll tax cap for each year). They then select the highest earning 35 years over your lifetime, total them and divide by 420 (number of months in 35 years) to arrive at your "average indexed monthly earnings," or AIME. This is a number used to compute your actual benefit amount.

Since the highest earning years are usually the ones later in your working career, stopping work before you reach FRA will yield a lower benefit - if the estimated benefit computation used the predicted earnings between age 60 and your FRA to arrive at your benefit estimate.

The key parameter used to determine your actual benefit amount is something called your "primary insurance amount" (PIA), which is computed from your AIME and is your benefit at your full retirement age.

If you claim before FRA, your benefits will be reduced according to the number of months before that you claim (reduced by about 6.7% for each of the first 3 years early and then 5% more for any years more than 3 years prior to your FRA). Conversely, if you wait beyond FRA to claim, your benefit will grow at 8% per year until you are 70, when it would be 26.7% more than it would be at your full retirement age.

Of course, you don't have to wait until age 70 to apply, because you’ll earn delayed retirement credits (DRCs) of 2/3rds of 1% per month of delay beyond your full retirement age. But the longer you wait to claim, the more your benefit will be (up to age 70), thus possibly easing the impact of any benefits lost by not working until your FRA.

To summarize, if you don't work between now and your FRA, your benefits will be probably be less than shown in your most recent estimate. If you work and have earnings for some years after age 60, and those earnings are more than any of the 35 used to compute your estimate, the higher current earnings will be used to compute your final benefit amount. And if you delay beyond your FRA to claim benefits you may recover (thru DRCs) some of what was lost by not working between age 60 and your FRA. I realize this isn't a specific answer about how much less your benefit might be, but I hope this answers your basic question.


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 ssadvisor@amacfoundation.org.