When taxpayers receive their annual Social Security Retirement Income statement (SSI), they look at the benefits page to see the monthly amount that they will receive. There will be a number for declaring your maximum SSI benefits at age 70, your full retirement amount around age 67, and early retirement at age 62. As exciting or disappointing as these dollar amounts are, the embedded assumption is that you will continue working until the day you file for SSI benefits, and that you’ll be earning an increasing amount of income each year.
This means that if you stop working any time before you file at those ages, then your actual SSI payment will be lower than that estimate. You can calculate what your real SSI payment will be by using the online calculators on the SSI webpage. Look up “Social Security Detailed Calculator” or it is on this page today: https://www.ssa.gov/oact/anypia/anypia.html
Your SSI payment is based upon the highest 35 years of your actual annual income. For example, if you stop working at age 60 and file at age 62, then you have two salary zeros for age 60 and 61. Those zeros will likely reduce the amount of SSI money you’ll be receiving compared to the estimates that you had been reviewing from your Social Security statements each year. One financial advisor wrote that a client approached him after she had retired at age 61 and filed at age 67. To her horror, she discovered that her SSI payment was $1,206 lower than the estimate on her SSI Statement. So, her retirement plan is short by $14,472 in income per year, plus the annual inflation adjustment. The grand total of missed income, if she lives to age 85, is $300,000 in cash payments during her retirement from her calculation misunderstanding.
When you are formulating your retirement plan and making critical decisions, do not:
- Wing it on your own (which most people do)
- Ask your company’s Human Resources department (which a lot of people erroneously do)
- Ask your brother-in-law, who is a stock broker or insurance agent (which never ends well)
- Definitely do not take any advice from Social Security Administration staff (they do not know your whole retirement situation, financial goals, or let alone all the SSI rules and nuances)
Only act on advice from a full-time professional that only does retirement planning. Get referrals first, interview many advisors to narrow them down, go over references, and then do all the homework you can up front yourself so you can ask intelligent questions and understand their financial language. Or you, too, may unexpectedly find tens of thousands or hundreds of thousands missing from your retirement.