Work Til You're 85?And Beat Social Security | Graziadio Voice ...

I recently had lunch with a good friend who was knowledgeable about retirement, and he asked me if I had heard about an ?obscure incentive? that Social Security provides for enhanced benefits if you worked into your 80s.

I said that I had not, and then we both chuckled as neither of us had any intention to work into our 80s. The only thing that would change my mind would be if this obscure incentive was, in fact a really big incentive.

I?ll leave it to you to see if you feel it?s enough of an incentive for your own situation.

Here?s how it works: Social Security will automatically recalculate your benefits as you continue to work. The program will average your highest 35 years of earnings to figure your Average Indexed Monthly Earnings or AIME. This AIME gets put into a formula to ultimately figure out your Primary Insurance Amount (PIA), which is actually your full retirement benefit.

Laurence Kotlikoff wrote about this ?obscure incentive? on Forbes.com and I?ll let him explain how this can lead to more dough in your pocket:

?Social Security considers all your covered earnings from age 16 on and indexes, based on historic wage growth, all earnings through the year you are age 60. Earnings after age 60 are just treated at face value. So if you are now, say, 65, are still working, and you started work at 16, you have 45 years of indexed earnings and 4 years of nonindexed earnings. Social Security then takes the 35 largest of these values to compute your AIME.

If your current earnings are above the smallest of the 35 (ignoring this year?s earnings) being used to form the AIME, bingo! You?ll raise your AIME, which will raise your PIA, which will raise your Social Security check (checks, if your dependents are also collecting).?

Kotlikoff goes on to point out that he evaluated this for himself (he?s 62, feels great and is thankfully for all of us, still working and letting us know information like this) and he came to recognize that for him ?working to age 80 will raise my lifetime Social Security benefits by 22%.?

He goes on to point out that ?working from 70 to 80 would generate an even larger increase in lifetime benefits? as the income that he was earning in these later years would ?kick out all of the low earning ages out of my top 35.?

Working into my 70s and 80s did not sound like the retirement I had in mind, but fortunately the reality is that even continuing to work into your 60s can increase your retirement benefits. Emily Brandon had pointed this out when she wrote, ?You can claim Social Security benefits at age 62, but continuing to work without signing up for Social Security until you reach full retirement age or further delaying up until age 70 will increase your retirement benefits, assuming you now make more than you did in your 20s.?

I require things to be simplified, and simple is not a term that can be used when discussing Social Security. So the most simplistic way that I can summarize this is to conclude that if I?m earning a good salary that?s higher than when I was younger, feel great, and enjoy what I do in my 60s, I should continue to do that for as long as possible, as it will provide for increased benefits as I live longer.

By delaying my retirement age to 70 and continuing to earn wages that are higher that I earned in my younger days, I will generate a larger increase in lifetime benefits from Social Security.

I can?t wait until I have lunch with my friend again and discuss how I did in fact look into this ?obscure incentive? and can now clarify in simple terms what this would provide to me.

I?m sure, however, that we will once again chuckle at the thought of working beyond our 70s and into our 80s for this obscure incentive. In fact, although this all sounds good, I still think I would order the burger over the salad and take my chances.

Republished courtesy of marketwatch.com

Jack is the author of the book, "Safe 4 Retirement: The Four Keys to a Safe Retirement" which takes a holistic approach to retirement that considers not only the financial aspects but the need to focus on health, wellness, mental attitude and staying involved as keys to living a long and safe retirement. Jack is a former Financial Advisor and current CEO of GEM Research Solutions, a leading market research firm focused primarily on the financial services industry. Jack is a frequent speaker on the topic of retirement and just published "Having 'The Talk' with Your Parents About Retirement." Jack has been involved with numerous start ups.

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