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I was a homemaker until I was 45 years old. I returned to nursing school and am now full time employed.

I am taken back by the 35 years of earnings rule for Social Security.

I am contributing 25% of my income toward my company’s retirement plan. I am now 59 years old and I had hoped to retire at 62, but this rule will definitely take me further to 70!

How can I continue hoping to retire or partially retire at age 62?


This is a challenging question to answer in a non-technical way, says Joe Elsasser, CFP®, founder and president of Covisum®.

The first consideration is how much additional tax you will pay to increase your monthly benefit. “Social Security was designed as a progressive system, which means that it costs more in taxes to increase a higher wage-earner's benefit with additional earnings than it does a lower wage-earner's benefit,” Elsasser says. In order to figure out just how much it will cost you, you have to start with your Average Indexed Monthly Earnings (AIME) - effectively all past earnings multiplied by a factor that puts them on level footing with earnings in the year you turn 60. “If you have less than 35 years of work, then an additional year of work would replace a 0 in the AIME formula,” he explains. To raise your AIME by $1, you’ll have to pay FICA tax on $420 (35 years times $1 per month times 12 months).

The next step is a bit more complicated because of Social Security’s progressive benefits structure.

“For each dollar of average indexed monthly earnings (AIME) up to about $1000, you get 90 cents of Social Security benefit,’ says Elsasser. “So, if you averaged $1,000 per month in earnings over the last 35 years you would get a monthly benefit of about $900. Given our example above, earning $420 would increase your benefit by $0.90 per month or $10.80 per year.” The additional tax cost (for Social Security and Medicare only, not including Federal or State income tax) would be $32, so it would take only about 3 years to make up any tax cost for the additional benefit dollars. “If you are not eligible for spousal benefits, that’s a great deal,” he notes. “Many who fall into this situation are eligible for spousal benefits or divorced spouse benefits, which means the additional tax dollars are wasted.”

“If your average monthly earnings were between about $1,000 and $6,000, it's not as beneficial but still generally beneficial to replace the zero,” Elsasser continues. “In these AIME ranges, it still requires $420 of earnings to raise your AIME by $1, but each additional dollar of AIME only gets an additional 32 cents of monthly benefit, so in this range, it would take you less than 10 years of collecting benefits to make up the additional tax cost. That’s still a pretty good deal, but again you should consider possible spousal benefits.”

In the highest range, for people whose AIME is over $6000, each additional dollar of AIME only produces 15 cents of additional benefit. That means that it takes almost 18 years to recoup the tax cost of the additional benefit dollar for someone who has average adjusted earnings over roughly $72,000 per year. Elsasser notes, this example is for a W-2 employee. “Since self-employed people pay both the employee and employer portions of FICA taxes, the break-even periods are roughly doubled for self-employed people,” he says.

The other consideration is the coordination with other benefits. “I mentioned earlier that the existence of a spousal benefit may create a situation where raising your own benefit may have no impact,” Elsasser says. “The other consideration is whether your benefit is the higher or lower benefit in a married household.” If yours is the lower benefit in the household, it will continue only to the first death in the household, then will be replaced by the higher benefit. As a result, the time the lower benefit is collected is often considerably shorter than the time the higher benefit is collected.

“There are a variety of reasons to work longer, and increasing a Social Security benefit may be one of them,” says Elsasser, “but it is a complicated analysis, depending on the composition of the household, relative life expectancies, and historical earnings.” This decision should really hinge on your overall financial plan and your ability to reach your retirement goals, rather than strictly focusing on the Social Security component.

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I was a homemaker until I was 45 years old. I returned to nursing school and am now full time employed.

I am taken back by the 35 years of earnings rule for Social Security.

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