Will reducing work hours before Social Security retirement age affect my SS benefit amount?
I'm planning to scale back my hours next year but worried about how it might impact my Social Security benefits. I've worked full-time for 46 years (since I was 18!) and will hit my full retirement age in February 2025. My company is offering a transition program where I could drop to 24 hours weekly starting in July. My questions: 1) If I reduce my hours and earn about $38,000 instead of my usual $65,000 for my final year before FRA, will that significantly lower my monthly SS benefit? 2) Would I be better off just retiring completely while my income is still high? 3) Is there any financial advantage to retiring in December 2024 vs January 2025 for tax or benefit calculation purposes? I've tried reading the SSA website but still confused about how they calculate the benefits and whether one lower-earning year will make a big difference after decades of work. Any insight from folks who've been through this would be so helpful!
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Omar Hassan
Good news! After 46 years of work, one lower-earning year likely won't impact your benefit much. Social Security calculates based on your highest 35 years of earnings (adjusted for inflation). So if you've worked 46 years, you already have more than enough years to fill that calculation, and one lower year would just not be counted among your highest 35. As for retiring at year end vs. new year, there can be some tax planning advantages to consider. If you expect to be in a lower tax bracket next year, delaying income into January might save you some money. But from a purely Social Security calculation standpoint, it makes virtually no difference.
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Freya Pedersen
•Thank you! That makes me feel better about cutting back hours. Do they really adjust all those old earnings years for inflation? Some of my early years I was only making $12,000-15,000 annually (though that was decent money back then).
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Chloe Anderson
I went thru somthing similar last yr. cut down to 20 hrs a week 6 months b4 retiring. No effect on my SS check at all!! They told me they use your 35 highest earnings years so unless your making more NOW than you did in any of those 35 years (adjusted for inflation) it dont matter what u do in your last year.
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Diego Vargas
The previous answers are correct about the 35 highest earning years, but there's actually a bit more to consider with the timing: If you retire in December 2024, your earnings for 2024 will be part of your earnings record immediately. If you wait until January 2025, you'll actually reach your Full Retirement Age (FRA) in February, so you'd have just one month of potential benefit reduction if you claim immediately in January. However, there's another consideration: the earnings test doesn't apply once you reach FRA. So if you work in January 2025 and claim benefits, you might be subject to the earnings test for that one month, but after your birthday in February, you can earn unlimited amounts without reduction. If you're planning to claim immediately upon retiring (rather than waiting until 70 for maximum benefits), the December vs January decision might depend on your expected January earnings and your overall financial situation.
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Freya Pedersen
•I didn't even think about the earnings test! So if I retire in January 2025 but claim benefits right away, they might reduce my January payment because I'm working that month? But then February onward would be fine because I'll be at FRA? This is so complicated!
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Diego Vargas
•Exactly right. For 2025, the monthly earnings test amount would likely be around $4,800 (it's $4,710 for 2023). So if your January 2025 earnings exceed that amount and you claim benefits for January, your benefit would be reduced. But once you reach FRA in February, the earnings test no longer applies. For simplicity, some people just wait until their FRA month to claim, which in your case would mean claiming in February 2025. Then you don't have to worry about the earnings test at all, regardless of how much you earn in January or any earlier months.
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CosmicCruiser
Everyone here is forgetting about COLA!!! If you retire Dec 2024 you won't get the 2025 COLA increase but if you wait till Jan or Feb you WILL get it!!!! That's FREE MONEY every month for the rest of your life!!!!! Don't leave it on the table!!!!!
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Anastasia Fedorov
•That's not quite accurate. The COLA is applied to your benefit regardless of when you retire. If you're entitled to benefits for December 2024, you would get the 2025 COLA. The COLA is announced in October and takes effect with December benefits (paid in January). What you might be thinking of is that your initial benefit calculation uses the indexing factors and bend points from the year you become eligible (the year you turn 62). But that's already set for this person since they're turning FRA in 2025, meaning they turned 62 in 2021.
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Sean Doyle
When I hit my retirement age last year I just kept working part time. didnt make any difference on the ss benefits. They just look at your lifetime earnings not what your making right now. but if your under full retirement age and collecting early then there are limits to what you can make.
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Zara Rashid
I tried calling SSA to ask almost this exact question a few months ago. Complete nightmare. Was on hold for 2+ hours before getting disconnected. Called back, waited another hour, got someone who couldn't even understand my question properly. Finally I used a service called Claimyr (claimyr.com) that someone recommended in another thread. They got me connected to an SSA agent in about 20 minutes instead of hours. You can see how it works in their video: https://youtu.be/Z-BRbJw3puU The agent I spoke with confirmed what others are saying - one lower earning year after 46 years won't hurt your benefit amount. They use your highest 35 years, and they're indexed for inflation too.
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Freya Pedersen
•Thanks for the tip about Claimyr! I was dreading having to call SSA with more questions. Did you find the agent knowledgeable once you got through?
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Zara Rashid
•Yes, the agent I got was really helpful! She actually pulled up my earnings record while we were talking and showed me how changing my last year's income wouldn't affect my benefit calculation at all because I already had enough higher-earning years. Saved me a lot of worry about my retirement planning!
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Chloe Anderson
BTW what I did was retire on Jan 3rd. That way i got my vacation time payout in the new year and it helped with taxes cuz I was in a lower bracket the next yr with less income. might be something to think about.
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Diego Vargas
One additional point that might help with your decision: if you're going to continue working part-time after claiming benefits, and you've already reached your Full Retirement Age (FRA), there is NO limit on how much you can earn while still receiving your full Social Security benefit. So in your case, once you reach FRA in February 2025, you could work as much or as little as you want with no impact on your benefits. This gives you flexibility to gradually reduce your hours or even continue working part-time indefinitely if you enjoy your job.
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Freya Pedersen
Thanks everyone for all the helpful information! I feel much better about my plan to reduce hours next year knowing it won't significantly impact my SS benefits after 46 years of work. I'm thinking I'll probably work part-time until my actual FRA in February 2025 and then file for benefits at that point to avoid any complications with the earnings test. I'll check with my HR department about the vacation payout timing too - good point about the tax implications.
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