Ask Larry: How Much Will Retiring At 65 Reduce My Social Security Retirement Benefit?

Today’s Social Security column addresses questions about what affect stopping work at 65 before filing at 67 would have on benefit rates, how to acquire more quarters of coverage to qualify for benefits and how early you can submit your application before actually beginning to receive benefits. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, Inc.

See more Ask Larry answers here.

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

How Much Will Retiring At 65 Reduce My Social Security Retirement Benefit?

Hi Larry, I would like to stop working at 65 but not claim Social Security until my full retirement age of 67. However, I will have exactly 35 years of earnings on my record at 65, but two of those years are very low wage.

If I work till 67 I would add a good amount to my total lifetime earnings. How big of a drop in monthly benefits would I incur if I surrender those two high income years? Thanks, Kieran

Hi Kieran, The benefit formula for calculating retirement benefits is too complex for me to be able to give you any dollar estimates without knowing your full year-by-year Social Security earnings history.

Social Security will base your retirement benefit rate on an average of your highest 35 years of Social Security covered wage-indexed earnings. So your benefit rate wouldn’t really drop if you stop working early, it just won’t increase like it would if you replaced your lower earnings years with higher earnings years.

My company’s software — Maximize My Social Security or MaxiFi Planner — allows you to enter your Social Security earnings history and then add projected future earnings so that you can determine how much those earnings would increase your benefit rate. The software also analyzes all of your various filing options so that you can choose the best possible strategy to maximize your benefits based on your individual set of circumstances.

It sounds like you may want to consider using the software to do your Social Security planning. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry

Will I Acquire More Credits If I Work As A Substitute Teacher?

Hi Larry, I am a retired teacher in TX. I left teaching briefly and when I returned, they started taking out for Social Security so I have 28 quarters. If I work as a substitute teacher, will I acquire more credits? Thanks, Ted

Hi Ted, Possibly. You can earn a quarter of Social Security coverage (QC), up to a maximum of four QCs, for each $1,470 that you earn this year, but only if you pay Social Security taxes on the earnings. I have no way of knowing whether or not the substitute teaching that you’re referring to would be subject to Social Security taxes though.

You would need at least 40 QCs to be able to qualify for Social Security retirement benefits, and your benefit rate could be lowered if you also receive a pension based on your earnings that were exempt from Social Security taxes. You may want to consider using my company’s software to help you with your Social Security planning. The software could help you determine how much you might qualify for if you do reach 40 QCs and it will also calculate any effects of the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). Best, Larry

Can I Apply As Early As Next August Or September If I Want To Claim Benefits Next December?

Hi Larry, I am waiting until I turn 70 to collect my Social Security retirement benefits. I turn 70 in the last week of 2022. I understand I can apply up to four months before I want benefits to start. Does that mean I can apply as early as next August or September?

Also do I indicate that I want my benefits to begin in the month I turn 70 to get the maximum amount and expect my first payment to begin in January 2023 as Social Security pays one month in arrears? Thanks, Kathy

Hi Kathy, Yes, you could file your application as early as August 1st, and you’d want to select December as your month of election to start benefits. You will then receive your maximum possible benefit rate even though you don’t reach age 70 until late in the month.

Your payment for December will be scheduled to arrive on the fourth Wednesday of January since you were born after the 20th of December. Best, Larry