Effect on Social Security if I Never Work Again

After retiring a year ago, I was vaguely concerned that, by not working, I might be robbing myself of significant future SS retirement benefits. But I was so sick of work, I pulled the plug before really looking into the effect on SS, because, well, we were FIRE.

The other day, curiosity tickled me into action.  I found our paper social security statements from 2010 (apparently they stopped mailing them in 2011 due to budget measures) and dug in.

The statement reported that I could collect an estimated $1950 per month if I took benefits at 62 years of age. However, this amount was calculated with the assumption that I’d be working another twenty years.  I wanted to find out what the estimate would be if I never worked again.  Luckily for me, ssa.gov provided an online calculator.

Methodology: I plugged my earnings record from my 2010 SS statement into http://www.ssa.gov/planners/retire/AnypiaApplet.html and estimated earnings for subsequent years. I pseudo-swept the following:

  • SS retirement ages from 62 to 70
  • annual salary for just one additional year of work from $0 to $150k
  • annual salary for going back to work every year 2016+ from $10k to $150k (until I begin taking SS payouts).

Mostly, I plugged in data to get a feeling for the results, which are posted in a table below. But before we get to those …

Some details about my situation:  I’m 42 years old and have paid into SS for 27 years, 19 of which were for career level, regular FT jobs. I maxed out SS contributions in 16 of those years. 8 of the first 27 years ranged from $100 to $3000, so effectively zero dollar years for the purposes of the ‘average earnings over top 35 earning years‘ calculation).

Note: all numbers are in today’s dollars.

The main take away: At this point, waiting a year to take SS is more lucrative in terms of monthly payment than is going back to work for ONE year. However, going back to work full time until retirement at 70 has the largest effect (well, duh). Here are some numbers.

Other Take-Aways:

  • Baseline: If I never work again and collect SS retirement benefits at age 62 I’ll receive $1425 a month, but if I wait until 70 I’ll receive $2500 a month.
  • If I work one additional FT year* between now and taking SS retirement benefits, I’ll boost my monthly payout by $50-85 ($50 if I take benefits at 62 y.o., $85 if I take benefits at 70).
  • Each year I delay taking benefits adds between $92 and $160 per month ($92 delaying from 62 to 63 y.o., and $160 delaying 69 to 70 y.o.)
  • If I go back to work very part time and make $10k per year going forward, I boost my SS payout approx the same level as going back to work FT for one year.
  • Going back to work FT and then taking benefits at 62 increases my monthly benefit by ~$500.
  • Going back to work FT and then taking benefits at 70 increases my monthly benefit by ~$900 versus not working another day in my life and taking benefits at 70.
  • Going back to work FT and then taking benefits at 70 increases my monthly benefit by ~$2000 versus not working another day in my life and taking benefits at 62.

* Working FT = earning a wage where, by year end, I max out SS withholding.

$2000 per month sounds like a lot to be leaving on the table, but it comes at a cost of 26 years of full time work!

The data:

Col A WorkWork is me working to early retirement age (36 work years, retire age 62)
Col B One Year Break (OYB) is me taking 2015 off then work til retirement age (35 yrs by 62)
Col C One More Year (OMY) =FIREing Dec 2015, never working again.
Col D Freebird is me FIREing Dec 2014 and never working again (my actual scenario)

Each row is the monthly benefit I would collect if I began taking social security retirement benefits at the age listed to the far left.

You can see that the difference of columns A and B are only a few dollars / effectively the same. I believe that is because for both cases, I would have completed my 35 max out years prior to hitting 62, and the $150k I assume I earn in 2015 is just slightly bringing up my average.

(A)WorkWork (B) OYB (C) OMY (D) Freebird
62 $1946 $1940 $1473 $1425
63 $2078 $2073 $1569 $1517
65 $2408 $2405 $1813 $1753
67* $2585 $2669 $1990 $1925
68 $2826 $2823 $2119 $2050
69 $3053 $3049 $2287 $2212
70 $3466 $3462 $2594 $2509

*Full Retirement Age … note: I extrapolated these after the fact – they need to be corrected but they should be within the ballpark.

This chart tells me that if I work just one additional year in my life (Column C vs D), it will boost my SS payment by between $48 (age=62) and $85 (age=70).

Whereas, never working again, and delaying SS payments by a year can boost monthly payout by $93 or $300 depending which year to year sequence I choose (62 to 63 = $93) … (69 to 70 = nearly $300)

In October 2015, I posted a version of this analysis to reddit r/financialindependence.  Besides rocket-boosting my karma, it spawned a long thread of useful discussion.  One reply was from u/Lord_Peppe who pointed us-of-the-hive to an excel spreadsheet written by The Finance Buff.  It graphs exactly what I was trying to get a feel for – the marginal change in ss benefit for every additional year worked.

The cool thing about the graph is that it shows two ‘knees’ in the line.  At first the year over year increase in monthly payout is steep.  But it doesn’t matter, because until you’ve earned 40 credits (10 years of work), you land past the first knee.

SSA Monthly benefitTurns out, I retired just after the second knee in the curve.  Nailed it!

So, going forward, if I ever work again, it’ll because I want to work.  It won’t be for added social security benefits. The extra $50 per month will be nice, but no reason to come out of retirement.