First Person: Hitting My Peak Earnings Too Young Will Hurt My Social Security

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I used to look forward to my 40s and 50s as my peak wage-earning years. For the past 6 years, I have received pay cuts instead of pay raises. Instead of bonuses, I've had to budget for furlough or unpaid days off. According to a recent article by Mother Jones, most individuals hit their peak earning power at age 45. I was interested to learn from the Mother Jones article that people with professional degrees tend to peak at age 37, while those with associate's degree peak at 50. High-school dropouts see their highest earnings at age 53. Even though I have a bachelor's degree, I made the most income in my 20s. With the way things have been going, I'll be earning less money in a few years at age 45 than I did when I was in high school. I'm afraid peaking too early in my career will negatively affect my Social Security.

Figuring out when to collect

If I continue to earn less money in my 50s than I did in my 20s and 30s, I figure I might as well collect Social Security at age 62. According to an AARP article, Social Security benefit payments are tied to average lifetime earnings. By checking the benefits calculator at website, I was able to try out different financial scenarios. If I continued to earn the same income as I earn now, I'll receive $1,029 a month at 62. If my income gets cut in half due to job layoffs, I'll only get $661 in Social Security benefits at 62, which is unacceptable. If I was still earning the higher amount I made in my 20s, my Social Security benefits would be $1,370 a month at age 62 and $2,522. if I continued to work until age 70.

Being forced to work forever

It's highly unlikely I'll be able to take my full retirement before age 70 without earning a higher income in my 40s and 50s. If I'm only able to earn half as much as I now earn, I would have to work until age 70 just to collect $1,199 a month in benefits. Of course, most experts say Social Security benefits will be reduced by at least 25 percent for people by the time I retire in 25 or 30 years. I need to prepare financially for a radically reduced Social Security payment. Since I don't have a government job, I can't rely on thrift savings accounts. I need to pull as much as I can out of my slim paycheck to save in a Roth IRA and 401(k) plan.

Making wise choices

Even though my income has declined since the year 2000, I have made other wise financial choices since that time. I made two real estate purchases that helped increase my net worth. By paying down my mortgage in my 30s and 40s, I should be able to retire without any mortgage debt. I can also soften the blow of a low Social Security benefit by receiving dividends from the mutual funds and other investments in my Roth IRA account.

In addition to being careful with the money I save and spend, I can also try to boost my income so my best earning years are not the ones that have already past. Unfortunately, most of my baby boomer colleagues in the workforce have been laid off. If it's difficult for them to earn enough in the final stretch before retirement, I'm not sure I'll do much better. I'll just have to take Social Security benefits completely out of the equation as I plan for retirement so anything I get will just be icing on the cake.

More from this contributor:

Irrational Retirement Choices I'm Confronting

Planning for an Extreme Early Retirement

I Aspire to be Comfortable, Not Rich


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