Tuesday, May 07, 2013

Social Security beneficiaries lose money indirectly after late-career layoffs

Social Security beneficiaries who got laid off from a high-paying job when well into their 50s or 60s often wind up with compromised benefits, as a story on CNN money today explains. That is “Unemployment haunts Social Security Recipients”, link here.
The basic problem is that your Social Security benefit payment is based on your top 35 years of earnings. If you lose a high-paying job at the end of your career, and then work in interim jobs for low pay, your best 35 years earnings average goes down.  It’s like blowing a test in high school or college.
Also, “you” may feel pressured to start Social Security benefits early, when they will be less. Furthermore, some employers base pension payments on the expectation that Social Security can start at age 62, and increase the “offset” penalty, or reduce the “bridge” at that age.
I lost my main IT job on Dec, 13, 2001 at age 58 (actually I stayed on the payroll until Dec. 31).  I had 8+ months severance and a 401(k).  But because of later circumstances, I converted the 401(k) to an IRA and took out taxable payments from 2004 to 2007, thinking I could need to prove income if in fact I needed my own apartment.  I would have paid less tax had I been able to stretch it to five years.

As an aside, readers may enjoy the Association of Flight Attendants' (AFA) discussion of the Social Security Offset on YouTube, 2008.

No comments: