Planning matters

Salary Impacts to Social Security

Isn’t my Social Security benefit based on my last three years of salary?

One topic we routinely talk about with clients is when to draw Social Security. Often, that also leads to discussing how much their salary in their final working years will impact the amount of their benefit.

Social Security is calculated using a worker’s average indexed monthly earnings during the highest 35 years of earnings. What does it mean to index your earnings?  Simply put, indexing brings nominal earnings up to near-current wage levels.  See these examples from Social Security Wage Indexing Example  Also note that indexing stops for any wages earned after an individual reaches age 60.

If you earn more in your last few years of work, it will certainly help the calculation, but it won’t have as much of an impact as it does in a pension system like Oregon PERS or Washington DRS where your benefits may be based on your final 3-5 years’ salary.

What can impact your benefit more than bumping up your salary is working the full 35 years, or more, so you don’t have any zeros in your calculation. Adding zeros to an average salary can really hurt your benefit. So if you only have 33 years with earnings history, it may be worth it to work, even if part-time, for a few more years. Another factor that has a greater impact is the age at which you decide to draw.  Individuals born in 1943 or later see approximately an 8% increase in their benefit for each year they delay drawing their benefit. See how the age you begin drawing would impact your benefit by using this chart from

The decision of when to begin drawing Social Security can be impacted by a number of factors. Your life expectancy, spousal earnings, how long you intend on working full time and many more. Talk with your Planner to develop a strategy specific to your situation.

Written By Patricia Spies