Do Social Security Benefits Increase if You Stop Working? Or Decrease?

Do Social Security Benefits Increase if You Stop Working? Or Decrease?
There is a lot of confusion about Social Security and when is the best time to start the  benefit — especially among the growing number of people who are interested in an early retirement.  However, the answer to the question, “Do Social Security benefits increase if you stop working? Or decrease?” can be a bit complicated and completely dependent on your own personal situation. But, first some facts….

Some Facts About How Your Social Security Benefit Amount is Calculated

Your income history and when you choose to start benefits are the two biggest determinants of your benefit amounts. The factors that can change the amount of your benefit include:

Your Top 35 Years of Eligible Earnings

Your Social Security retirement benefits are based on your average indexed monthly earnings during the 35 years in which you earned the most. NOTE: If you are eligible for a pension from work where you did not pay Social Security taxes (usually a government job), then a different formula is applied.

The Base Amount You Are Eligible for at Your Full Retirement Age

Your Primary Insurance Amount (PIA) is your projected Social Security benefit amount at your Full Retirement Age (FRA) — also sometimes referred to as your “normal” retirement age. Social security has a formula they use to calculate your Primary Insurance Amount (PIA). Whenever you stop working your PIA will be calculated based on all the money you earned that was taxed by social security. PIA equals the amount of money you will receive in social security benefits per month if you choose to wait until full retirement (which I guess is 66 for you) to receive benefits. Your FRA is determined by your birth year and it is between 66 and 67 for most people.

When You Start Benefits — Before or After Your Full Retirement Age

You can start Social Security retirement benefits at anytime between ages 62 and 70 — whether you are working or not. You get a:
  • Smaller monthly benefit for every month you start Social Security before your FRA.
  • Progressively higher benefit if you wait until after your FRA — up till age 70.

Cost of Living Adjustments

You are eligible for Cost of Living Adjustments (COLA) starting with the year you turn 62. Your benefits increase with the COLA — even if you are not yet collecting.

Frequently Asked Questions About How Social Security Benefits Change if You Stop Working

Do Social Security benefits increase if you stop working?

Your PIA amount will not increase. However, the longer you delay the start of benefits, the higher your monthly benefit amount will be. Without continued work, your Social Security benefit amount will be based on your existing work history. For example, if you stop working at 62 and your PIA is $2,000, this number will not change if you never make any more money that’s taxed by social security (unless congress changes how PIA is calculated or adjusts the amount to account for inflation). So if you wait until you are 66 before receiving benefits then your PIA of $2,000 (that you accumulated up until the age of 62) is what you will receive per month from Social Security. Now if you decide to take social security benefits at the age of 62 you get the amount that you see on your Social Security statement that shows what you get if you stop working and collect at 62. This amount that you see is not your PIA, rather it is a certain percentage of your PIA because you won’t get the full PIA amount if you take benefits at 62. If you stop working at 62 your PIA will be lower than the amount your statement is showing you will receive at 66 because the social security statement assumes you will continue working until the age of 66. The following website will calculate what percentage of your PIA you will get if you choose to collect benefits at age 62. Once you find out that percentage all you have to do is follow the example below to calculate what For example, my full retirement age is 67. Once I enter the necessary information in the following link (for your retirement year, enter the year that you will turn 62. For the retirement month, choose the month right after your birth month). Social Security Quick Calc… http://www.ssa.gov/OACT/quickcalc/early_late.html It calculates that my social security benefits will be 70.42% of my PIA if I choose to take benefits at 62. Your percentage may be different.

I want to retire early (stop work) at age 55. Will my Social Security income be less than projected on my benefit statements?

It can be. Your projected Social Security benefit amount assumes that you will have continued income until claiming. And, most people are at the height of their earning years in their 50s and 60s — which is an important consideration since Social Security uses your 35 highest earning years to determine your benefits. Your projected benefit amounts that you can see on your annual Social Security statement (or on My Social Security online) assumes that you will be earning the same amount the during each of the rest of your working years as the last year of income reported to Social Security. So, if you stop working, it could really pull down your benefit. As someone recently pointed out on the NewRetirement Facebook Group, “I am 58. When figuring my highest 35 years, I have already replaced my lowest income from when I was in working high school with higher wage years. Now I am superseding the income that I earned on summer jobs while in college.”

Do I need to start Social Security when I stop working?

Absolutely not. You can stop and start working whenever you want.  And, you can start Social Security at anytime between ages 62 and 70.

What happens if you stop working at 62 but don’t collect until full retirement age?

You will receive the full retirement age benefit based on your top 35 working years — adjusted for COLA.

How can I figure out what my Social Security benefits will be if I retire (stop working) early?

If you intend to stay at your current income up until at least age 62, then you can get a simple and fairly accurate projection of your benefits by reviewing your Social Security Statement or on My Social Security online. If you need a more customized projection, you can use the Social Security Estimator . This tool will allow you to try scenarios where you stop working early, take a break from work or work part time and see the long term impact on your benefits.

How much less might my Social Security income be if I retire early?

Your Social Security income depends on too many factors to provide an answer to this question.  The best way to determine if your income will increase or decrease is to use the tools on the Social Security Administration web site. However, as a rough estimate, a medium to high earning individual might reduce their Full Retirement Age benefit by about $50 a month by stopping work in their mid to late 50s as opposed to around their Full Retirement age. Fifty dollars a month doesn’t sound like a ton, but it adds up. You could have an extra $600 a year which would pencil out to $18,000 over 30 years of collecting benefits.

When should I start benefits?

The amount of money you stand to receive from social security benefits does increase over time if you choose to delay your benefits past the minimum age of 62. The full explanation of how the system works can be found here: In short: Starting Early: If your full retirement age is 66, then the amount you qualify for at age 62 is roughly 26% less than your “full” retirement benefits, which you would receive at age 66. Waiting to Claim Later: If you choose to delay the benefits beyond your full retirement age, then you will receive a bonus of between 3 and 8% (depending on your birth-year) to your social security for every year that you delay your benefits up to the age of 70.
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