How Do They Figure?

merc669

merc669

New Member
Maybe a stupid question. But lets say I work until age 62 for example. I decide to draw from my 401K and a Pension but Not claim Social Security. Now the income coming in from the pension and 401K per year is a lot less than what I would make if I continued to work. How would this affect your Social Security if I then started drawing it at age 66 and a half? Someone said they base what you will draw on your last 3 or so years of work prior to claiming Social Security. Lets say the avg at 62 was 80K and from 62 to 66 you avg 25K. If what was said was correct then retiring early and not drawing social security until full age of 66.5 would affect your benefits. So what is correct here or how would I figure this out? Thanks!!
 
merc669

merc669

New Member
Thanks! So it looks like 35 of your highest years of income is how they figure. So, should be a hindrance to any plans we may have.
 
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rhenderson

Guest
Social Security benefits are based on earned income. Pensions/401k distributions are not "earned income" as defined by the tax code. Go the local SSA office and discuss your questions with SSA personnel. They can extrapolate the payments under each scenario, give you the "break even" date (what age would you be when the total amount you have received from SS be the same. You need to consider this when deciding when to claim SS benefits based on your health and family history of longevity. Also, you need to consider whether you will in fact retire completely or continue working after age 62. Between age 62 and your full retirement age there are limits on the amounts you can "earn". I did not draw SS until I reached full retirement age because I was still working and my income exceeded the limit. However, the SS agent (then at Camp Springs) told me to come in start my SS in January of the year I reached 66 because I would not exceed the limit before April which is the month I reached 66. While there was a minute reduction for taking SS four months early, the thre months SS payments for Jan. through March far outweight the reduction. This may not work for someone whose birthday is later in the year and is dependent on your income.
Bottom line - use the SS Office (one is in Charlotte Hall). Their people can look up your history and give you detailed information. Make an appointment and your visit will go much smoother because you won't have to wait as long to be seen.
 
C

czygvtwkr

Guest
Only two things affect your social security payment, how much you made while working at a job that takes out social security (not collecting a pension), and how long you wait to start collecting.
 
merc669

merc669

New Member
Main thing I was looking at was maybe living on the 401k and a pension from say age 62 till We hit the 66 year mark. Then at that time we would move to start claiming SS benefits. So there would be a 3 to 4 year gap from the time I retire till the time I begin drawing SS. So only the only income coming in would be hypothetically some amount from 401K and the small retirement pension from a prior company. This is in hopes of maximizing the best we feel to give us the best return. And yes, I have heard different theories and what the news says, like wait till 70 and get a bigger pay-check or draw early for longer. My thoughts are for those that wait till 70 or preach that theory, it is like the Insurance companies betting on when you will pass. They hope for you to go so that even your survivor receives a smaller portion. Mainly to save money. And of course taking it sooner for longer period. I will split the diff and take at 66.6 for SS. In the meantime I have figured that I can survive on 401k and pension until that time and then reduce to zero my 401k withdraws to extend that until 70 when you must start taking a withdrawal, living on SS and Pension. If 35 years is the standard rule then the 3 to 4 years of living on limited income should have a very minor effect overall on SS Benefits. But I agree with "rhenderson". I will also talk to SS Office and get their slant on things. Thanks Much!!
 
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czygvtwkr

Guest
I will tell you that you don't have to make lots of money to max out your social security. My dad was a machinist and died at 55, my mom is now getting his social security and it is the maximum payment. So anyone making 65k/year now if their earnings were at a similar level throughout most of their life they are probably maxed out on their payout.

Check this out http://www.socialsecurity.gov/pubs/EN-05-10070.pdf
 
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