There will be a surprise this month for millions of retired workers in the US: some of them may see their Social Security benefits cut.
A little-known fact about Social Security that can have a big effect on your monthly payments is that your benefits are based on the average of your 35 best years of earnings. If you have not worked in 35 years, those years are counted as zeros.
This could make your average go down and your benefits go down a lot. Many people are shocked to hear this because it is not something that is usually talked about when people talk about Social Security.
Someone on Reddit recently asked why this 35-year rule is not better known. They said that a lot of people on the platform, even those who were excited about retiring early, did not seem to understand how important those years could be for their Social Security.
Another user said it does not matter because I do not think people who are planning to retire early are going to depend on Social Security benefits. But this part of the law changes everything for people who depend on Social Security.
Americans who will see their Social Security benefits dramatically reduced
Your monthly payment from Social Security is based on your average indexed monthly earnings (AIME), which are based on your 35 years of highest earnings. If you do not have all 35 years, these things happen:
- If you have worked for 30 years, the Social Security Administration will add five years of zero earnings to get you to the 35-year mark. These zeros lower your average, which means you’ll get a smaller benefit than if you had a full 35 years of earnings.
- If you worked 20 years, Social Security will take into account 15 years of zero income, which has a more significant effect. With nearly half of your computation based on zero-earning years, the loss in your benefit may be substantial.
- If you worked more than 35 years, Social Security will still only consider your best 35 years, ignoring your lowest-earning years. This means that longer work histories can help you maximize your benefits by focusing just on your top earnings.
This rule can be especially important for people who have had a patchy work history, like those who have taken time off to care for family members, raise children, or reach other goals.
If you want to retire early, especially if you need more Social Security than you thought, you should think about how missing years could affect your future benefits.
Also, it is important to note that a lot of people who live in communities for early retirees do not plan to depend on their Social Security benefits too much.
But it is important to know how even a few years lost could affect your finances, since people live longer and retirement funds need to last longer.
How can beneficiaries increase their Social Security benefits if they are short of years?
Adding a few more years can help if you are getting close to retirement age and do not have 35 years of earnings.
This is true even if the pay is lower. Each extra year of income replaces a zero, which raises your average and could mean that your Social Security benefits go up.
The Social Security 35-year rule is important for anyone planning their retirement, even though it is not talked about very often. Now that you know this, you can make changes because missing years could mean a lower Social Security benefit.
What you know about this rule could have a big effect on your future finances, whether you want to retire early or just get the most out of your Social Security benefits. You might want to talk to a financial counselor to find out how this can change your life.
They can help you understand your Social Security estimates and suggest ways to increase your benefits so that you are fully prepared for retirement.
