Social Security Planning For Early Retirement
A week rarely goes by that Jeremy and I don’t receive at least 4 or 5 email questions from our radio listeners. I thought I’d share one of the questions with you this week as it was a great question.
I plan to stop work this year at age 60 and live on investment income. Since I will not be contributing to Social Security for the next six years (until age 66, when I’m eligible to collect without penalties), will this decrease my payouts when I reach retirement age? Also, does tax-exempt income count toward income that could be taxed when I collect Social Security?
Social Security retirement benefits generally are based on the 35 highest-paid years of your career (with the early-year figures adjusted for the average increase in wages over time).
Assuming you already have that many years of paid work under your belt, that is what your benefit would be based on come age 66. In this case, there is no penalty for not working between now and then.
But beware when you look at your benefit statement from the Social Security Administration (available at socialsecurity.gov). The estimated benefits for various ages assume that you continue working at your recent wages until you retire. Thus, those estimates may be based on earnings over the next few years displacing lower inflation-adjusted figures from early in your career.
If you stop working now, your actual benefit might be lower than those estimates suggest because the actual calculation would include more of those early years.
On your second question, tax-exempt interest is indeed counted as income for purposes of determining if part of your Social Security benefit is taxable. As much as 85% of Social Security income may be taxable. For more details, see IRS Publication 915.
And just a quick reminder, if you want to hear me answer more questions like this – maybe even yours – listen to Jeremy and I every Sunday at noon on WNTP 990am, or listen to recent programs on our website at franklinrs.com.