A few weeks ago, Mr. PiN surprised me. He announced that he wanted to earn some more money, in order to boost his Social Security paycheck.
I had brought this up a few years ago, when I first read this post from Physician on Fire about the Social Security bend points.
My takeaway at the time was that, for people with a lower earnings history, Social Security is set up to replace more of the income. Because the benefit is calculated on lifetime earnings, if you were in the workforce long enough to qualify for benefits, but didn’t earn tons, you can get a pretty good return on your efforts if you work and earn a bit more.
As a concrete example, if your Social Security benefit at full retirement age is going to be less than $921 a month, that means you probably haven’t earned a ton over your lifetime. Social Security will replace more of your income (90% of your average indexed monthly earnings or AIME), until you reach a monthly benefit of $921. Once your AIME is higher, Social Security figures you were making a better income and don’t need as much help, and so additional income raises your benefit by a smaller amount (apparently, 32%).
Thankfully, before Mr. PiN met me, he had already worked enough to qualify for a Social Security benefit. However, many years, he did not earn very much. He definitely has not reached that first Social Security bend point.
Working at home vs. Working for money
At the time I first heard about this feature of Social Security, Mr. PiN asked me if I wanted him to get a job. As he looked pretty unhappy–and, as he was spending a lot of time taking care of me and the house–I told him, no, I did not want him to go out and get a job. And that’s where we left things for the past few years.
Hence my surprise when he told me his decision.
Over the past few years, I have been quite spoiled by having a stay-at-home spouse. I don’t have to shop, cook, or do much of the cleaning. I certainly don’t have to do landscaping, or stay home from work to wait for repair people.
To be honest, we don’t really need the extra money; if our life gets turned upside down while Mr. PiN goes to work, it might not even be much of a net benefit (if we eat out more, or hire help around the house).
I thought it might be worth going through some of the numbers to see what sort of benefits we might be looking at.
Math is involved
It’s not clear how much we will be relying on Mr. PiN’s Social Security benefit.
I am the big earner in the couple, by far. His spousal benefit (50% of mine, once I file for SS) will be higher than the benefit he would be entitled to only from his earning history.
On the other hand, Mr. PiN is a good deal older than I am. So there will be a number of years between the time he hits full retirement age and I decide to start claiming my benefits (and thus, he can collect spousal benefits). In fact, if I delay benefits in order to maximize them, we might collect for eleven years based on his earning history.
If we might have 11 years of Social Security checks, maybe it does behoove us to increase his earnings history. To chase the closest bend point, as it were.
I decided to look a little closer at the PoF blog post (updated for 2022).
It turns out, Mr. PiN had a number of years when his Social Security earnings were zero. (He only needed 40 quarters of earnings, which requirement he absolutely met, so he is eligible to receive Social Security).
Since he hasn’t yet reached the first bend point in Social Security earnings, he will supposedly see a large return on his money any increased wages if he goes back to work.
Reviewing the article more closely, for each $420 he earns (up to a limit, but that limit is pretty high), he will increase his average monthly earnings by $1. Of which he will receive 90% back as a monthly benefit if he waits until full retirement age to collect. [The 420 factor comes from the fact that there are 420 months in the 35 years over which your earnings are averaged.]
So, if he earns $4200, he will get another $9 per month in a social security check.
That doesn’t sound too exciting.
Before I throw too much cold water on this plan, let me calculate this out a bit more.
He thinks he could probably earn about 3 times that much (let’s call it $12600, to make things easy) per year with his planned endeavors, without too much disruption at home. That translates to adding $27 to his monthly benefit.
If he can earn that much for the next 6 years before he reaches full retirement age, he would actually add $27 x 6 or $162 per month to his social security check.
Over those 11 years that we wait until I maximize my own (higher) social security check, that extra money will translate to an extra $21000 (roughly). It’s not an amazing windfall, but it’s also not chicken feed.
Decisions, decisions
I think, if Mr. PiN wants to earn more, that’s great. He can shore up his Social Security check a bit. Or a lot, if he wants to work a lot harder over the next several years. Using the example above, working for 6 years can bring in an extra $5 a day on his benefit, which would be nice.
However, I think the real monetary benefit is likely to be in the money he actually earns.
Six years of earning $12000 a year comes to $72,000. Even after taxes, that’s a lot of clams (or trips to Europe, or fancy lattes at the coffee shop). I think he has been retired (from paying work) long enough that he would very much enjoy bringing money into the house again.
If this were you, or your spouse, what would you advise?