Ask Larry: Will Retiring Before 62 Reduce My Social Security Retirement Benefit?

Today’s column addresses questions about having no income in the years before filing, potentially filing early with minor children, potential effects of continuing to earn income and how spousal benefit amounts are determined. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, Inc, which markets Maximize My Social Security and MaxiFi Planner.

See more Ask Larry answers here.

Have Social Security questions of your own you’d like answered? Ask Larry about Social Security here.


Will Retiring Before 62 Reduce My Social Security Retirement Benefit?

Hi. Larry, I plan to retire from my job with 30 years and 8 months of service. I’ll only be 59 1/2 then. I plan to claim my Social Security retirement benefit at 62. Will the two and a half years with no income before filing affect my Social security in a negative way? Thanks, Helen

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Hi Helen, Retiring early will probably have an adverse effect on your Social Security retirement benefit rate, and starting to draw your benefits at age 62 definitely will.

Your Social Security retirement benefit rate will be based on an average of your highest 35 years of wage-indexed earnings. If you have fewer than 35 years with earnings, years with zero earnings will be averaged in. That will reduced both your average earnings and your resulting benefit rate. And if you start drawing your benefits at age 62, your monthly rate will be reduced for age. That would cause your benefit rate to be reduced to roughly 70% of the amount you’d receive if you waited until full retirement age (FRA) to start drawing.

Before making any decisions, you may want to my company’s software — Maximize My Social Security or MaxiFi Planner — to determine the best way to maximize your benefits. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry


Should I Start My Benefits Early If I Have Minor Children?

Hi Larry, I am 66, qualify for full Social Security retirement benefits and have two young kids, ages 8 and 11. Should I apply for benefits now in the hope of collecting the extra benefits associated with minor children or should I wait until age 70 when the children will be 12 and 15? Thanks, James

Hi James, I can give you some pros and cons, but ultimately only you can decide what’s best for you and your family.

The pro side of starting to draw your benefits now is that your eligible children could then start drawing child benefits sooner. Eligible children can each receive up to 50% of your primary insurance amount (PIA), but if you have two children drawing they will each receive less than the full 50% due to the family maximum benefit (FMB) FMB . The FMB that could be paid on your record depends on the amount of your PIA, which is equal to your Social Security retirement benefit rate if you start drawing at full retirement age (FRA).

The con argument would be that if you wait until 70 to start drawing, your monthly benefit rate will be 32% higher than your FRA rate. And, if you’re married and you die before your spouse, they could potentially then be paid that higher rate as a survivor. Best, Larry


Did I Miss Something With Regard To Maximizing Benefits?

Hi Larry, I reached my FRA of 66 in April. Using the SSA’s AnyPIA calculator, I created a PIA which I then confirmed by manually recreating AIME and applying bend points to that AIME. I am fortunate in that my 35 highest years’ earnings all either exceeded maximum taxable earnings for that year or were indexed (for years before my 60th birthday) into a top 35 year.

This version of my PIA allowed me to consider the impact of continuing to work beyond this year (when I reached FRA).In a nutshell, if I make more than the $137,700 taxable maximum in 2020, it contributes about $20 to my PIA. Because I’m self-employed, I pay nearly 13% in tax on that income to produce an insignificant benefit.

With respect to the very narrow question of maximizing benefits, did I miss something?

By the way, I filed an app online and wrote in the remarks that I immediately wanted to suspend. The objective is to see what the “real” PIA would be. SSA says one cannot file and suspend since the 2016 law! Thanks, Richard

Hi Richard, I don’t see anything that you did incorrectly with regard to calculating your benefit rate, but there’s not really an absolute maximum benefit amount. For example, if you continue working and earning more than the maximum amount subject to Social Security taxes, your benefit rate could be recalculated to replace your previous lowest indexed earnings year. So, in theory at least, you could continue working and increasing your benefit rate indefinitely.

Regarding what you were told by Social Security, you can still file for and suspend your retirement benefits but you cannot suspend your benefits any sooner than the month after the month you request suspension. So the only way that you could apply for your benefits and suspend them effective with your first month of entitlement is if you select a month later than your month of filing as your month of election (MOE) to claim benefits. If you chose the month you applied or an earlier month as your MOE, you couldn’t suspend your benefits effective with your MOE. That means you’d have to be paid for those months and you wouldn’t receive delayed retirement credits for the months you’re paid.

You don’t mention whether or not you’re married, but filing for and suspending your retirement benefits could potentially prevent you from being able to collect survivor benefits. I don’t have enough details to be able to advise you, but if you are married and/or if you can’t suspend your benefits effective with the MOE you chose on your application then you may want to consider withdrawing your application. Best, Larry


Can My Husband Collect My Benefit Amount Instead Of His?

Hi Larry, Both I and my husband collect our Social Security retirement benefits. My benefit is a few hundred more dollars than his. Can he file to collect my benefit amount, instead of collecting his? If so, would he receive the full amount that I currently receive? Thanks, Amy

Hi Amy, Unreduced spousal benefits are calculated at a rate of 50% of the worker’s primary insurance amount (PIA). A person’s PIA is equal to their Social Security retirement benefit rate if they start drawing at full retirement age (FRA). The only way that your husband could qualify for spousal benefits from your account while you’re living is if 50% of your PIA is higher than his own PIA. Best, Larry


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