One segment of Social Security (SS) is a supplemental retirement system that requires contributions in the form of payroll taxes. If you stop working but delay taking SS benefits, what is due to you will not decrease. It would help if you understood the eligibility criteria and how these benefits work.
Social Security Benefits Eligibility Criteria
The eligibility criteria for collecting Social Security include age, length of employment, and contributions into the system. In addition, you need to have U.S. Citizenship or be a legal alien.
To receive retirement benefits, you must be at least 62 years old. And by the time you reach that age, you must have worked at least 40 quarters over your entire working life. You must have paid into Social Security through payroll deductions and earned at least 40 credits during that time.
How Social Security Benefits Are Calculated
Social Security benefits are calculated based on your lifetime earnings. After your earnings are adjusted to account for wage inflation, Social Security calculates your average adjusted monthly income over your highest 35 years. The Social Security Administration then uses this information to calculate the basic benefit to which you are entitled.
If you worked fewer than 35 years, the formula puts zero in for those years without earnings. So, in general, you will receive higher benefits if you work the entire 35 years. For people whose wages increase during their working life, working more than 35 years may increase their benefits to a point.
The Full Retirement Age for Social Security
For Social Security purposes, full retirement age varies, depending on your date of birth.
If you were born in 1937 or before, full retirement age is 65. If your birth year is between 1937 and 1943 your full retirement age increases incrementally by two months with each year. For those born between 1943 and 1954, the full retirement is 66 with similar increases between 1955 and 1960. Those born in 1960 or later reach full retirement age at 67.
It is worth noting that the full retirement age for those born on January 1 is based on the prior year.
Delaying Benefits Increases Payout
You can begin collecting reduced benefits as early as age 62. But after age 62, your benefit will increase each year that you delay taking benefits until you reach age 70. Therefore, your Social Security income will not decrease if you stop working but delay SS benefits.
However, continuing work after age 62 or delaying receiving benefits may result in increased future benefits. That is because as you grow older and gain more working experience, you may earn more. Since your highest-earning 35 working years factor within the Social Security benefits calculations, those later years may enable you to reach the maximum benefit amounts.
Social Security Planning Tools
The decision about when to start taking benefits depends on your financial situation. If you live to the average life expectancy, which currently stands at 77.8 years, you should expect to receive the same total benefit whether you opt to take early benefits or delay.
Each year Social Security sends you a statement that shows your expected benefit at age 62, at full retirement age, and at age 70. The Social Security website has planning tools to help you decide what would work best for you and your family (see Resources).
If you have money saved up for your early retirement years and can afford to delay taking Social Security retirement benefits, do so. That way, you can earn the maximum amount possible, depending on what you put into the system during your working years.
Based in Newport, R.I., Stephen Whitney has been writing since 2007. He is a retired executive with 25 years experience in the computer industry. Whitney holds a Bachelor of Arts in psychology from Boston University and a Master of Business Administration from Northeastern University.