If I am 34 years old and make 150,000/year and decide to retire, when can I start collecting social security and will it be based on my current salary? I was told the amount you can collect is based on the 10 years prior to when you go on social sec. In my case that would be nothing because I wouldn’t be working? Thanks-J
I’m curious about this too.
You cannot collect retirement benefits (as opposed to disability, etc) before age 62. To get full benefits you have to wait till age 67 (this age is likely to gradually go up). This much SSA statements make very clear.
If you poke around their site (you can also download a benefits calculation program), it says benefits are calculated on your lifetime earnings. Nonetheless, all projections they are willing to do for you seem to be based on an assumption of your earnings being projected out to your retirement age. The algorithm being used to calculate the benefits is not all clear.
There’s a ceiling on how much income SS taxes are levied on, also, which are the earnings entered into your benefit calculation. For SS purposes, your $150K won’t be any different than earning about $70K. I can’t recall how the
ceiling is computed - it changes every year.
Basic question - if you either flat out quit working, or work at something which draws much reduced income at, say, age 50, do you still get the full benefit of your “high income years” when you start drawing benefits 12 - 17 years later?
Oh, and apologies to folks outside the USA for airing our byzantine IRS regulations on this board.
Your ss check is only losely based on what you earn. Soc sec ain’t a pension. What you put in today isn’t gonna be put in some kind of fund for you.
What you put in today pays for what people are drawing now. What you get when you retire is partly determined by how many people are being taxed when you retire.
Again, it’s not a pension fund. Soc security is a money pooling plan so that poorer people and disabled people and widows can get retirement money.
For retirement, normal benefit payments from U.S. Social Security begin at age 65; benefits may be drawn as early as age 62, but the benefit amount is reduced since the average person retiring at age 62 will receive benefits for a longer period of time than the average person retiring at age 65.
The benefit formula is based on the 35 highest years of covered earnings during the employee’s career. The years need not be consecutive, but years of zero covered earnings must be included. The amounts of covered earnings are indexed to age 60 (For example, someone retiring today might have been earning $15,000 in 1970, which would have been a good income, the equivalent of almost $60,000 in 1999 purchasing power.) These are then averaged to create the Average Indexed Monthly Earnings (AIME) on which benefits are based.
NOTE: The OP has the mistaken idea that the social security old age benefit is based on the last ten years of earnings; that is not so, it is (at least, currently) based on the highest 35 years. Many private COMPANY retirement plans are based on the last five or ten years of earnings, but that’s a different story and a different question.
The OP’s assumption (I think) is retirement at age 34, let’s say with 10 years of working experience covered by social security, and with NO coverage by social security after that (for instance, living off investment income rather than employment income.) At age 65, the 35 highest years of earnings will include those ten years of earnings, but will also include 25 years of zeros. Thus, the benefit formula will provide a reduced AIME and therefore a reduced benefit, compared to someone who had an additional 25 years of employment earnings.
FOOTNOTE: Once the AIME is determined, the complicated benefit formula is skewed in favor of the lower AIME. The idea is that the lower-paid employees need a higher percentage of their pay provided by social security.
Hope that helps.
Yes, it does. Couple points:
65 is the age now. Quote from my SSA statement:
SS tax is applied only up to a “maximum taxable earnings” figure that will be considerably less than your income if you make a fairly high salary. It seems that the calculation uses this ceiling, not your actual income if it exceeds that amount (fair enough, since they didn’t collect the tax on it). So earning a huge amount for a few years won’t let you retire with good SS benefits.
Macho…
Why wait to retire ? All you need is to become disabled and milk SS forever. I’ve seen a lot of people do it. Chronic Fatigue Syndrome works pretty well, go for it !! Good Luck !
Thank you, yabob, for raising the point about the ceilings. I didn’t make the connection in jc’s original post, that he thought a few years of excessively high earnings would replace many years of zero. Not so. Each year, there is an Social Security Wage Base (for 2000, the annual amount is $76,200). For retirement purposes, social security contributions are only based on pay up to that Wage Base. (For Medicare, the charges are based on all earned income, without regard for the ceiling.)
The wage averaging that I described above, over the highest 35 years, goes year by year, on covered pay up to the Wage Base for that year, indexed to the year of calculation.
And, yes, where I said “age 65”, the retirement age is slowly changing to age 67 (Thank you, President Reagan) over the next quarter century, based on date of birth.
It is an interesting phenomenon that most changes to social security (which are usually a reduction) take place slowly, over a long number of years into the future, so that current voters don’t get too upset about 'em.
And a caution: the US social security system is very complex, and my comments here are meant to simplify. Consequently, there are lots of fine points and special circs that are omitted.