You don’t want to end up struggling due to a smaller benefit.
Hopefully, you’re someone who’s approaching retirement with a decent sum of money saved in an IRA or 401(k). But even so, you may end up relying quite heavily on Social Security to pay your expenses as a retiree. So it’s important to do what you can to snag the highest monthly benefit possible.
However, if you don’t manage to put in 35 years in the workforce, you might end up with a smaller Social Security benefit. And that could result in years of financial struggle.
35 is the magic number
The monthly Social Security benefit you receive in retirement will hinge on a few different factors. It will depend partially on your filing age, but also on the amount of money you earned during your 35 highest-paid years in the labor force.
If you don’t have a 35-year work history, you’ll have a $0 factored into your benefits calculation for each year you’re without an income. A single $0 will lower your monthly retirement benefit somewhat. A number of years of $0 income will have more of an impact.
It’s very possible to reach your 60s or even beyond without 35 years of work under your belt. Perhaps you took a decade or more off after having children to be around to raise them. Or maybe you took time off to be a full-time caregiver to an aging parent.
It almost doesn’t matter why you took a break from earning an income. The point is, however, that if you don’t have a 35-year work history, you’re looking at less monthly income from Social Security. And that could hurt you in a serious way during retirement, especially if your nest egg isn’t all that robust.
A career extension doesn’t have to mean full-time work
If you’re reaching retirement age and don’t have 35 years of earnings yet, then one thing you may want to consider is extending your career. However, if you’re ready to retire, that may not be easy.
Let’s say you’re already in your late 60s and are just plain physically and mentally done with working. If you only have a 32-year work history, it may not be feasible to push yourself to stay in the labor force for another three years.
But you may not have to — at least not in the traditional sense. Even if you’re unable to stick to a full-time career for a few more years, you can help grow your Social Security benefits by working part-time. That way, you can replace some $0 income years with a part-time income.
That income doesn’t have to relate to the field you’ve worked in all your life. Let’s say you’re an accountant but are tired of the stress and/or monotony of that role. In that case, stop working as an accountant. Instead, go out and find something you’d prefer to do that pays. It could be creative work or something fairly easy on the brain, like driving for a ride-hailing service.
Any income you report and pay taxes on counts toward your Social Security benefits. So freelancing in some capacity could do the trick of giving you a more generous monthly Social Security payday if you don’t have a 35-year work history.
Of course, you may just decide to accept a smaller Social Security benefit and not work those extra years, and that’s OK, too. If you have a nice amount of savings, that may be more than fine. But if you’re worried about limiting yourself to a smaller Social Security benefit for life, then consider extending your time in the workforce in some way if you don’t have a 35-year income history.