Social Security: How a Career Phase-Out Could Get You More Benefits
Retirement is a milestone many people look forward to. And some people are so eager to get there that they’re willing to upend their lives by going from a full-time, 40-hour-or-more weekly work schedule to not working even a minute.
That so-called hard stop can have financial and emotional consequences, though. For the former, it can mean having to adjust spending and budget anew overnight. For the latter, it can mean ending up at a loss for how to stay busy.
That’s why you’ll often hear that a career phase-out is a better bet. With a career phase-out, you don’t go from full-time work to none at all in a heartbeat. Instead, you slowly transition your way into retirement by reducing your hours until you’re ready to fully call it a day.
A career phase-out could make the adjustment to retirement easier on you. And it could also result in a higher Social Security paycheck.
A good way to end up with higher benefits
Ideally, you’ll kick off retirement with a decent amount of money in an IRA or 401(k) plan — one you can withdraw from regularly during your senior years. But Social Security might still end up being an important income source for you — and, also, a more consistent one.
The amount of money you’re able to withdraw from your nest egg during retirement might hinge on well your investments perform. But once you lock in a monthly Social Security benefit, that’s the amount you can generally look forward to for life.
That’s another reason to consider a career phase-out. Let’s say you’re entitled to your full monthly Social Security benefit at age 67, and so you decide on that age for retirement purposes. If you leave your job cold, you may have to claim benefits right away to cover your bills.
But what if instead of doing that, you were to cut back to 25 or 20 hours of work per week? That could leave you with enough of a paycheck to manage your bills without claiming Social Security. That might, in turn, give you the option to delay your filing and snag a higher monthly benefit in return. (You can delay your claim for a boost up until the age of 70.)
Furthermore, your monthly Social Security benefit will hinge on your 35 highest-paid years of earnings. But if you don’t work a full 35 years, you’ll have a $0 factored in for each year you’re without an income.
So, let’s say you reach your target retirement age and only have 34 years of work under your belt. If you work part-time for another year, you can replace a $0 with some amount of income. The result? A higher monthly benefit throughout retirement.
It pays to take things slowly
If you’ve toiled away at a job all your life, you may be eager to bring your career to a close. But before you move forward with that hard stop, consider the merits of easing into things. You may find that it not only benefits you from a Social Security standpoint, but that it makes the transition into retirement easier overall.
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