Seniors May Benefit From Not Retiring

Question: My eye happened to fall on a Los Angeles Times story last May, which said Sen. Alan Cranston (D-Calif.) collected $20,212 last year in Social Security payments. That works out to more than $1,600 a month. Isn’t that awfully high?

To be sure, he was in the plan from the beginning. But I think there were years along the way when he was in civil service-type jobs with separate pension-requirement benefits.

And it seems to me I read somewhere that the maximum Social Security benefits now are something under $1,600. Right?--G.H.

Answer: Right, the current maximum for someone retiring at age 65 this year--and having paid the maximum into Social Security--is $838 a month, which, sure enough, is a country mile wide of $1,600.


However, as Joe Giglio, a public affairs specialist here for Social Security, points out, funny things can happen in the final reckoning of benefits for someone who continues to work beyond the age of 65.

Misunderstood Aspect

The whole computation-of-benefits method, in fact, is one of the most misunderstood aspects of the entire Social Security program. And this is true even when there are no complications as there are when the retiree doesn’t actually retire.

To determine normal benefits for someone retiring this year, you would begin with the year of birth and add age 62 to this. For someone born in 1922, for instance, you would thus come up with 1984 (1922 plus 62). From this you then subtract 1951. This gives you the number of years (33) on which Social Security computes your benefits.


From these 33 years of credit, Social Security then knocks out the five years of lowest earnings, and your dollar benefits are based on the remaining 28 “best” years--when your earnings were highest and the years when your contributions into Social Security were also at their highest.

What’s the significance of 1951 as the base point? None, really, Giglio says; it’s just the constant that was thrown in when the Social Security was overhauled in about 1961.

OK, fair enough. We’ve ended up with 28 years of earnings, and if you’ve had maximum earnings during that period (which were $3,600 a year in 1951 and have risen to today’s $45,000 a year), you’ll retire in 1988 with a monthly benefit of $838.

But how does the 74-year-old Cranston, and many others in similar situations, end up with monthly benefits clearly in excess of that?

Such people have one thing in common: They all continued working with relatively high incomes past the normal retirement age of 65 without drawing Social Security benefits--even (as in Cranston’s case) beyond the age of 70. Everyone applies for Social Security when he hits 65, of course, because that’s the way you qualify for Medicare, which no one is too rich to ignore.

Others Slow Down

But many choose to keep working at 65 and don’t draw their benefits. Others may slow down, but still have earnings, and for every $2 they earn over $8,400 (that’s for ’88, but it goes up a little each year), they lose $1 in Social Security benefits. So, if they earn more than $28,512 a year (this year), they’ve canceled out their Social Security benefits.

“People who continue working past 65, then,” Giglio adds, “have three things working for them that jack up their benefits when they do start drawing them. First, there’s a ‘delayed retirement credit,’ which adds 3% to their benefits for every year they don’t collect them. Secondly, there’s a cost-of-living increase built in each year, and this compounds it. And thirdly--and this is the most important--the recomputation of their benefits each year works strongly to their advantage.”


Each year you work after 65, that is, your benefits are refigured, and your current earnings are added in while your lowest earning year is dropped out. Thus, if you continue working just enough to disqualify you from collecting Social Security--which is in excess of $28,512 this year--this figure is added in, and your earnings for, say, 1954 (when the maximum was $4,200 a year), is dropped out of the calculations.

And, in computing benefits, when you add in a figure like $28,512 and drop out a figure like $4,200, you’ve hiked the “average” by a big margin.

At age 70, of course, the earnings ceiling no longer applies, and so anyone with a brain in his head starts collecting his Social Security benefits, although he may still continue working and paying into the system.

“The ‘delayed retirement credit’ stops, however, at age 70,” Giglio said, “so there’s no more 3% a year added to the benefits. But two of the three factors remain very much in force if you continue working: You’re still having the cost-of-living increases added in and, again, more importantly, your benefits are still being recomputed each year, and your current earnings are being added and some year of low earnings is being dropped.”

There are some changes upcoming, he adds, that will also have a bearing on these computations. In 1991, for instance (this affects everyone born after 1929 and turning 62 in ’91), Social Security will go to a 40-year computation from which will be dropped the five years of lowest earnings.

This will raise the base from the current best-32 years to best-35 years. Another upcoming change: For those “retiring” in ’89 or later but continuing to work, the delayed retirement credit will start going up in stages from the present 3% a year to, eventually, 8% a year for those retiring in 2009 and beyond.

And, more immediately, Giglio adds, the maximum ceiling on annual earnings will be liberalized in 1990 so that monthly benefits will be reduced $1 for every $3 you earn instead of the present $2 you earn above the maximum (although we don’t know what the maximum will be at that time).

None of this, naturally, applies individually to Sen. Cranston (his situation is a private matter between him and Social Security), but it does explain why someone exactly like him--still hale, hardy and working at 74--draws benefits clearly above the “maximum.”


“All we know, for sure,” Giglio adds, “is that, at age 65, the Social Security benefits for the senator would have been exactly what the maximum was for anyone else of his age and his earnings.”

Campbell cannot answer mail personally but will respond in this column to consumer questions of general interest. Write to Consumer VIEWS, You section, The Times, Times Mirror Square, Los Angeles 90053.