Before retiring early, calculate Social Security benefits closely

Money Talk

Your Money

March 20, 2005

Q. I am 55 years old and thinking about retiring in a year or two. Would my early retirement affect how much I receive from Social Security after I elect to take regular benefits at age 65?

- B.S.K., Chicago

A. Based on the way Social Security benefits are calculated and paid, you and many others should carefully reconsider your decision to retire early.

Here's why.

The monthly benefits you receive from Social Security depend on your average earnings over the best 35 years in your work history. The longer you work, the more you're likely to receive every month from Social Security. If you stop working at age 56, 57, or 58, you run several risks.

You might not have worked a total of 35 years and thus will have "zero" figure into one, two and possibly three or more years of your best 35 years of earnings history. Years in which you earn nothing will inevitably reduce your average income and reduce your future Social Security benefits.

"Those zero earnings years can noticeably affect what you're likely to receive in benefits," said Mark Lassiter, a spokesman for the Social Security Administration in Baltimore.

Early retirees also risk leaving the work force during their peak earning years. As a result, they forfeit the chance to increase their average yearly earnings over the best 35 years and consequently reduce what they're likely to receive when they start collecting benefits at age 62, 65, or whenever.

"Any salary or wages you earn today that are above your long-term average can increase the benefits you receive tomorrow," Lassiter said.

To see what you might receive from Social Security, based on what you know today:

Retrieve your Social Security statement. You should have received a copy three months before your most recent birthday.

Visit the link at the Social Security Administration Web site. Plug the income data from your statement into the calculator. Then enter data that might accurately reflect your income this year.

I created a hypothetical man born in January 1948 who earned $35,000 every year from 1973 through 2004. Then that man quit working. With a work history of 32 years, this man - if he started collecting benefits at age 65 in 2013 - would receive a monthly benefit of $1,525.

Another hypothetical person born the same month decided to work a few more years. She started in 1971 and stopped this year, and also earned $35,000 a year, every year for 35 years. Her monthly benefit amounted to $1,564, which is $468 a year more than in the first case.

Money Talk

Q. I have about $10,000 in Series H and Series HH U.S. Savings Bonds. They are titled as follows: My name, plus the beneficiary's name. I would like to name a new beneficiary as co-owner but I am told I cannot do so without the signature of the existing beneficiary. Is this so? And if so, why?

- N.J.C., Treichlers, Pa.

A. Rules of joint ownership sometimes give co-owners limitless freedoms. Other times, those same rules can tie the hands of both owners: One cannot do anything without the presence or written permission, of the other.

As joint owner of your Series H and Series HH U.S. Savings bonds, you could cash them in and wouldn't need your co-owner to sign any papers. Nor would the joint owner have to give written or oral permission to complete the transaction, said Daniel J. Pederson, author of Savings Bonds: When to Hold, When to Fold and Everything In-Between.

Matthew Lubanko is a Your Money columnist. E-mail him at

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