A Big Financial Mistake: Social Security Misconceptions

John Robinson |

The biggest financial planning mistakes and omissions people make often have nothing to with investments.

A client once approached us to ask if his decision to retire early would adversely affect his SS benefits even though he does not plan to claim benefits until FRA or possibly age 70. In particular, he was wondering if he should get a part-time job in order to keep earning social security eligible wages.

With respect to this issue, two common misconceptions that I regularly encounter are

  1. The belief that social security benefits are calculated off of either the last ten years of earnings or
  2. An individuals ten highest earnings years.

Neither is accurate. Instead, social security retirement benefits are calculated using the worker’s highest 35 years of earnings indexed for the cost of living. To the extent that the client in this anecdote had 35 full years of earnings and that the indexed value of the lowest of his highest 35 years was more than he could expect to earn from part time work, we concluded that, as far as social security is concerned, there would be no additional benefit to his working part time in retirement .

For more on this topic, see the following link from Social Security Administration – Your Retirement Benefit: How it is Figured