How Social Security can help you catch up on retirement savings
I was chatting with my dad on Father's Day (he prefers phone calls to Father's Day gifts), and everything seemed ordinary at first. He asked how Jake and I were enjoying our house and whether I still liked my new job. However, I was in for a surprise. When I asked him how his work was going, he said, “Oh, I retired a couple of weeks ago.”
After I stopped sputtering, I learned a couple of things:
First, his coworkers got about as much notice as I did. Apparently, during a weekly goal-setting meeting, they were going around the room and when they got to him, he said, “Today's my last day.”
Second, I learned my dad actually started taking Social Security five years ago, when he turned 65.
Americans aren't saving for retirement
It seems like every day a new survey is released that concludes Americans aren't saving nearly enough for retirement. Google “percentage of Americans who haven't saved for retirement” if you want to engage in some schadenfreude. My search suggested that fully a third of folks have saved a big, fat nothing! Scary.
There are many reasons for this. In my dad's case, he never had a job that even provided retirement programs he could contribute to until he was in his 50s (let alone a job that offered a match from his employer). In fact, if I recall correctly, he never even had a job that offered health insurance until late in his career.
Since he was raising two children and caring for a disabled wife during many of his working years, retirement was always one of those things he thought he'd have to deal with later.
Many people can't retire as a result of a variety of factors. So my dad certainly wasn't alone in the lack-of-preparedness department. And while he did start contributing to retirement accounts as soon as he worked for an employer that offered them, he knew he was way behind. Fortunately, he lived simply and had no debt. Unfortunately, he quickly realized that catch-up contributions weren't going to be enough.
Working while taking Social Security
I had no idea, but according to the Social Security website:
“You can get Social Security retirement benefits and work at the same time. However, if you are younger than full retirement age and make more than the yearly earnings limit, we will reduce your benefit. Starting with the month you reach full retirement age, we will not reduce your benefits no matter how much you earn.”
I knew that if you were under full retirement age and took benefits, they would be less than the full amount, and Get Rich Slowly, and other personal finance websites, talk about working part time in retirement. However, I have never seen a discussion of working full time in retirement while taking Social Security as a catch-up strategy for retirement savings. Additionally …
“As long as you continue to work, even if you are receiving benefits, you will continue to pay Social Security taxes on your earnings. However, we will check your record every year to see whether the additional earnings you had will increase your monthly benefit. If there is an increase, we will send you a letter telling you of your new benefit amount.”
So the fact that (like many Americans) the last years of my dad's career were also his highest-earning years means that it is likely his benefits increased, since he kept working. Amazing!
What my dad did with the money
Also news to no one: Social Security's full retirement age is slowly being raised, and the benefits slowly decreased, to deal with long-term solvency issues the program has. What you will get from Social Security depends on how old you are now.
Especially if you are on the younger side, it may be that Social Security payouts won't be nearly enough to live off of during your golden years. However, my dad was able to start claiming the full benefit amount at 65 and, in his case, Social Security alone is enough for him to live off of as long as there isn't some sort of financial emergency.
For the last five years, then, he's been living off of Social Security and banking his entire income from his day job in a savings account. As a result, he's built up a nice little nest egg to tide him over in case of emergencies. And for at least another five to 10 years before that, he was contributing to a retirement account that he is now able to access.
My dad's plans for retirement
At this point, while he doesn't have enough to live extravagantly, he has more than enough to pay for his two-bedroom condo and upkeep on his car. He told me his initial plans mainly revolved around a major purge of his belongings. While he has never had a tendency toward acquisitiveness, living in the same place for almost two decades means things have been creeping in — and not creeping back out again — for a long time. So, much like J.D., my dad is declaring a war on stuff. I know I stored some things at his house before I moved across the country over a decade ago that I haven't been back for, so I told him to send that my way.
Despite having retired from a job selling RVs, however, he is not interested in RV retirement. (I think it reminds him too much of work!) Instead, he's also going to finally take some time to visit his daughters since we both live in other states. And my sister and I both have enough space to put him up for however long he wants to stay, though in my case I suggested he wait until the high temperatures start to dip below 110!
He also said that the whole not-working thing may just be temporary. RV sales plummet in the summer, and the main reason behind the timing of his retirement was not wanting to spend the hottest months of the year pacing the sales lot with so little a chance of it paying off. He says once things cool off and the snowbirds flock back to Florida, he'll probably work again, at least part time. He can probably make enough during the busy season to add even more to his retirement stockpile.
Do you or someone you know take Social Security benefits while continuing to work full time? Has this method increased your monthly benefit? What made that the right choice, or was it a decision dictated by circumstances? Share your thoughts in the comments below!