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New Social Security Rules and Your Job Plan

© Ann Needle

I mentioned a while ago that Social Security rules changed earlier this year to encourage older workers to stay on the job. That is, if you are age 65 or older, continuing to work will no longer reduce the Social Security benefit to which you are entitled, should you decide to begin collecting. (Previously, those 65+ Social Security recipients received reduced benefits if they earned more than a given amount annually.)

Overall, the new law should encourage more “retirees” to stay on the job, hopefully adding more skilled workers to a tight labor market. That’s because the law also makes it harder for employees ages 62 to 64 to earn Social Security, slicing benefits by $1 for every $2 of salary earned over $10,080 (as of 2000). Still, the law could help add to the standard of living for the over-65 group. Since the new rules took effect in April, I’ve been asked several times when it makes sense to work and/or collect Social Security, given the new guidelines. As always, the answer depends on your financial situation, so I’ve outlined below some of the factors you should note when weighing the Social Security-work situation.

Collect, or Wait?

Of course, if you are working and currently in dire financial need, you don’t have a choice but to collect Social Security. For others this decision is more complex, depending on such variables as —

Your life expectancy — The longer you expect to live, the harder you should consider continuing to work and put off Social Security benefits. And I mean consider. First, your life expectancy is always iffy, but you need to take a tough look at actuarial tables, your family health history, and your current health.

After that, every month you delay collecting until age 70 gets you a “delayed-retirement credit” that later increases what you collect. To make this easier to see whether this delayed credit is really worth pursuing, Kiplinger’s Personal Finance recently “did the math” of calculating what would happen to someone who, at age 65, was entitled to the fully monthly benefit of $1,433, but chose to wait until 70 to collect. This move would have increased the recipient’s monthly benefit to $1,863. However, if he or she began collecting at that point, it would take 16 years (to age 86) for that bigger monthly payment to make up for the $86,000 he or she would forego between 65 and 70. Most importantly, today’s 65-year-old male will probably live only to 80.