Social Security Q&A: If I've Generally Earned under $10K per Year, Will Maximizing My Earnings between 65 and 70 Increase My Social Security Benefits?

Commentary by Laurence Kotlikoff

Source: Forbes

Social Security may be your largest or one of your largest assets. How you manage it, by deciding which benefits to collect and when, can make an absolutely huge difference to your lifetime benefits. And those with the highest past covered earnings have the most to gain from maximizing their Social Security.

I’ve been answering questions and writing columns about Social Security each week for the past two years on PBS NEWSHOUR’s website. The editors at Forbes asked me to post a Q&A each day from those columns. To see all my columns, please go to my software company’s site, www.maximizemysocialsecurity.com, and click More Press below the WSJ quote.

Today’s question asks whether someone with a record of low earnings should increase their earnings covered by Social Security between 65 and 70. The answer highlights various ways individual and household benefits can rise due to increased earnings.

Question: I am a self-employed male, age 65. I have never earned much, usually less than $10,000 a year. However, my income is quite flexible; I could earn much more. If my Social Security is based on my best years of income, would it be worthwhile to earn more in these last years before I start to collect my benefits? I don’t intend to start until I’m 70 and I have a family history of longevity.

Answer: Very good question. The answer is a big yes! I just ran your case through my company’s Maximize My Social Security software. I assumed you earned $10,000 per year, in today’s dollars, from age 20 on, but that you would earn $40,000 per year from now through age 70 (you’d retire the day you hit 70). With that increase in income, your lifetime benefits rise from $280,263 to $325,878. That’s a 16 percent increase. Your annual retirement benefit, measured in today’s dollars, would rise from $13,087 to $15,217.

The extra Social Security payroll taxes you and your employer would need to pay over the next four years on the $40,000 would total $19,840. But your lifetime benefits would rise by $45,615. So you would clear over $25,000 in extra Social Security benefits net of extra Social Security taxes. If you have a spouse or young or disabled children who can collect benefits on your earnings record, the gain would be even larger compared to the extra taxes. Moreover, if you die, your spouse and qualifying children will receive 16 percent higher widow and survivor child benefits.