I will be 60 this August, and anticipate retiring somewhere between January and August 2013. I intend to collect SS at age 62. I just got my SS notice, and the estimate says it presumes I will work until age 62.
Does that mean my benefit will be lower if I stop working before 62? If so, is there any way to estimate what that reduction would be?
If you're not afraid of a formula, you can see the rules at:
Social Security Benefit Amounts
These are the steps:
1) Index each year's wages.
2) Pick the 35 highest years (fill in with zeros if necessary)
3) Take the average of those 35 years
4) Your benefit at your Normal Retirement Age is 90% of the first X dollars,
plus 32% of the excess over X but below Y dollars,
plus 15% of any excess over Y.
5) For people born in 1950, X=$9,204 and Y=$55,488.
6) If you start benefits at some age before or after NRA, there is a starting age reduction or increase.
This means that additional years of earnings only impact your benefit if they are high enough to bump out some of the low years in your 35 year average.
For example, you may make $80,000 this year, but you've already got 35 years in and the lowest is $30,000. So only $50,000 of this year's earnings really help your benefit.
If you already have reached an average indexed wage of $55,488, the additional annual benefit of say $50,000 of earnings is 50,000/35 x 15% = $214 annually.
(Note that the SS administration quotes all their numbers in monthly units. I've converted to annual.)