By Craig Erwin, Ph.D.
When you reach retirement age, will it matter if you worked part-time or full-time in your teens? Will it matter whether you took a year off to travel? It matters to the Social Security Administration (SSA) and it may affect your social security payout when you retire. The Social Security Administion regularly informs us how much money we have made each year we have worked. This includes the years when we were in our teens, probably working part-time.
When you retire, the SSA determines the size of your checks with a formula based on the income from each of the 35 years in which your income was highest. If you had no income during some of those 35 years, the SSA inserts zeros into its formula for those years. It doesn’t matter whether you worked part-time or full-time or only worked part of a year; the SSA formula is based on your pay in your 35 highest earning years.
My wife was surprised to learn this. She assumed the SSA would base her payout on a few of her highest earning years, not 35 years. She has only been in the US 28 years (and she didn’t work outside the home when our kids were young). If she retires at 62, the SSA will insert quite a few zeros in her formula. If you lost a job or spent years in college (not working or working part-time), or traveled after college, or lost your job, or quit your job to have children, your SSA payout could shrink.
So, before you do something that will result in an employment gap, consider how your Social Security payout might be affected. Long employment gaps can really bite. Were you aware of the way the SSA determines payouts? Do you have extensive employment gaps? For more information on retirement, click on the following links: