What You Might Not Know About Social Security

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Ann Brenoff

Published August 18, 2023

Whether you’re counting on Social Security to fund the bulk of your retirement income or just supplement it, there are some things everyone needs to know.

67 is the new 65.

There’s an excellent chance that when they increased the age at which you could collect full Social Security retirement benefits, you were too young to know about it, let alone care. But yes, the Big R is no longer 65 thanks to the changes made in 1983. You are still eligible for Medicare at 65 — although if you still have health care coverage through your or your spouse's employer, you may not want to switch. But without question, the biggest change to Social Security was pushing up the full retirement age from 65 to 67 over a 22-year period. For anyone born in 1960 or later, 67 is the new 65.

Estimate your monthly benefits using AARP’s Social Security calculator. Run the numbers today!

Missing work and the number 35

Remember that amazing gap year you took between jobs when you traveled the world on a shoestring budget and Frommer’s $5-a-day guidebooks tucked in your backpack? Good times, right?

Well, enjoy looking at those yellowed old photos because you may have unwittingly smashed your own thumb with a hammer when it comes to your retirement benefits. The reason is this: The SSA loves the number 35. And when it goes to calculate how much your monthly retirement benefits should be, it looks at your lifetime earnings. First it adjusts those earnings for inflation, then it takes your top 35 highest-earning years and uses an average indexed monthly earnings formula to come up with the benefit you will receive at your full retirement age.

So, that fun sabbatical year — or if you had periods of unemployment or entered the workforce late — will be counted as zeros in that formula and will bring down your average. If you took off a decade to raise kids and only worked 25 years, it will calculate your benefits on 25 years of earnings plus 10 years of zeros.

What this means in plain English is: If you don’t work 35 years for whatever reason, you will get less.

That is, unless you do this.

Work, work, work and work some more.

Once you have toiled for 35 years, each additional year of earnings will replace an earlier year of lower or zero earnings, which will increase the average — and hence, your benefit amount. You may feel more than ready to stop work now, but putting in an extra year on the job could result in higher monthly benefits checks later.

Some of us like the idea of transitioning into retirement by cutting back our hours and just working part-time for a year or so before we collect our gold watches. If your company offers a transition program, it behooves you to check your SSA record before you take the leap to part-time. Have you already maximized your earnings report by having worked 35 years or are there still years with zeros? If your additional earnings from a year of part-time work are lower than any of the 35 years of earnings already on your record, it will have no effect on your Social Security benefit because those lower part-time earnings will simply not be counted. But if you still have years with zero earnings, working full-time would yield a better benefit than part-time.

The longer you wait to collect benefits, the more they will be. But remember the Las Vegas rule.

You can be eligible for Social Security benefits after working only 10 years, and you can start collecting retirement benefits as early as age 62 or as late as age 70. Between the ages of 66 and 70, the amount of your benefits increases by 8 percent a year. If you start collecting your benefits at 62, they are reduced by about 30 percent from what you would have gotten had you waited until your full retirement age.

It’s a gamble of sorts to figure out ultimately which way you will collect the most money. Will you live long enough to collect more money if you wait until 70 to start your benefits, or should you take what you can get at 62 because who knows where the Grim Reaper is lurking? As was once said about Las Vegas, “The house always wins.”

When do you plan to take Social Security? Is it a tough decision to make? Let us know in the comments below.