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Ask Bob: How do I estimate a future Social Security benefit?

Planning to retire this year, a reader is wondering how several years without earned income will impact her Social Security benefit at age 70. Adviser Heather Schreiber explains.

Question

My husband and I are retiring soon. He is 66 ½ and I will be 64 in December. We plan on taking his Social Security starting in January 2022 and leaving mine until I am 70 to maximize benefits. However, from reading my Social Security statement it looks like the estimated amount I would get at 70 is based on my continuing to work until then at the same income level. Since I will be retired and not making any income between now and then, how do I estimate what my benefit would be at 70? If it is significantly lower, then we will possibly change how much we plan to take out of our 401(k) at that time.

Answer

You are correct in the fact that your future benefit estimates are based upon the assumption that you will continue to work at the same level of your most recent year of recorded earnings, says Heather Schreiber, the founder of HLS Retirement Consulting. Retiring roughly six years before your intended claiming age may have an impact on the accuracy of your current benefit estimate.

“Your future estimated benefit will assume that you will continue to work at your most recent year of recorded earnings (2021),” she explains, “therefore, your earnings through October 2021 will be used to compute your future benefits. It isn’t until you reflect two years with no earnings that SSA [Social Security Administration] will calculate your benefit with the assumption that you will no longer work.”

Fortunately, there is a way to gain a better idea of what your eventual benefit will be without waiting for the SSA to compute your benefit with no future earnings. “If you have a my Social Security account, you can log in to your account and use the Plan for Retirement tool to determine what the effect of your retirement will have on your future benefit,” says Schreiber. Simply enter “0” in your “average future salary” and your intended claiming age of 70 under “retirement age.” Your benefit will be recalculated under that assumption. Any combinations of earnings and ages that you wish to explore may be saved and printed.

If you do not have a my Social Security account, you may also project your future benefit using the online benefit calculator tool. However, the downside of using this version is that you will have to manually enter your historical earnings. The one found in the my Social Security portal populates those earnings for you.

“Remember,” notes Schreiber, “your benefit estimates are based upon your highest 35 years of indexed earnings. Therefore, if you have 35+ years of earnings already, you are likely to see a small effect, if any, on your age 70 benefit. However, if your work history includes less than 35 years of earnings, you are likely to see a greater difference between your current age 70 benefit estimate and one in which you have no future earnings beyond 2021. This is because your current projected benefits assume you work until age 70, replacing no earnings years with those in which you have earnings.” Retiring now will include six years of zero earnings and will likely produce a lower income benefit at age 70 compared to your most recent income benefit projection.

Got questions? Get answers!

Email Robert.Powell@maven.io

Question

My husband and I are retiring soon. He is 66 ½ and I will be 64 in December. We plan on taking his Social Security starting in January 2022 and leaving mine until I am 70 to maximize benefits. However, from reading my Social Security statement it looks like the estimated amount I would get at 70 is based on my continuing to work until then at the same income level. Since I will be retired and not making any income between now and then, how do I estimate what my benefit would be at 70? If it is significantly lower, then we will possibly change how much we plan to take out of our 401(k) at that time.

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