written by Robin Patin, CFP®, CPWA®
She came to my office to discuss retirement. She was in her late 50’s, neatly dressed, worked for several years in a field she was passionate about and lived in a rented home in a local area.
“Here.” She slid a folded Social Security statement across my desk. “I can’t believe it!”. She
explained her work history, but her career was interrupted due to child care, illness and
caregiving for parents. She worked positions long ago where it was for tips and paid ‘under the
table’. A divorce and emergencies drained her IRA retirement account.
I opened the Social Security statement. This was going to be a challenging conversation.
As a financial advisor, the people that concern me are men and women in their 50s/60’s with a
long but interrupted career, single or divorced with little to no retirement savings. Before I
unfolded the social security statement, I knew what it was going to say.
Her estimated Social Security was in the ballpark of $1200 each month. And that was at full
social security age.“What happened?!?” She quietly exclaimed. “I can’t live on that!”
I asked about other assets (there were none). Next, I asked about her divorce and how long
was she married. Seven years. So no opportunity to file Social Security based on her former
I had to bring out the big guns. “How do you feel about possible retirement abroad in Mexico?”
She stared at me blankly. She didn’t speak Spanish.
This situation is all too common and requires some creative thinking to come up with a
solution. Some basics about social security:
- Social Security determines your retirement payout based on your top 35 years of earnings. If you don’t have 35 years of work experience, you receive a ‘$0’ for the years you have no earnings. This lowers your overall social security payout.
- Some jobs do not pay into Social Security. Talk to your employer to learn if your employer participates in Social Security.
- You have to work for at least ten years (40 quarters) to be eligible for Social Security.
- Social Security is considered taxable income. You may also need to pay for Medicare.
There are several factors that can lead to lower-than-expected social security/retirement
- Work interruptions (illness, child care, elder care)
- Years of working in low-paying jobs
- Working ‘under the table’ positions or in jobs that do not participate in social security
- Ignoring your social security statement – each year people should review their statement on https://www.ssa.gov/
How do we fix this? If you’re younger:
- Carefully consider work interruptions. You’re giving up an opportunity for present earnings, but it can also dramatically impact your social security. Can you easily resume your career if you take leave? Would be difficult to return? Take a leave of absence? Work part-time?
- Working a low-paying job doesn’t just impact you now, but may also reduce your future retirement earnings. Look for opportunities to advance and don’t be afraid to leave low-paying jobs for better pay. It’ll help you now and in the future.
- Working ‘under the table’ may be tempting, but Social Security takes its numbers directly from the IRS. Your estimated payment is based on what you paid into social security taxes. You may be paying less in taxes, but may give up a comfortable social security payment.
- Check your social security statement yearly.
If you’re already in your 50’s or 60’s and find yourself in this situation:
- If possible, start maxing out your retirement savings. You need to go beyond the match offered by some companies. In 2023, you can contribute a max of $30,000 to your 401(k). Consult with the company 401(k) plan administrator or HR to get set up with contributions.
- Work as long (full-time) as you can. Can you extend your career? Making an adjustment or a switch to make it comfortable to work into your 60’s or even 70’s? With low Social Security earnings, you may have to extend your work career to maximum social security payout (which is currently age 70).
- Can you work part-time in retirement? If you love your job and it is viable for you to continue working, this may be a viable plan – but we aware that few people comfortably work in their 80’s. However, if you can work from age 70 to 75, it can make a difference.
- Can you reduce your expenses? Retire to a lower cost of living state? Live with children or relatives in retirement?
People can agree that the shock of a lower-than-expected Social Security payment combined
with little in the way of retirement savings can lead to a renegotiation of their expected
retirement experience. This doesn’t mean that retirement has to be a negative experience.
Aggressive savings and a willingness to extend one’s career can provide options to make a
comfortable transition to retirement.
Robin Patin, CFP®, CPWA®
Robin has an established process for gaining a deep understanding of her client’s financial and emotional needs and creating a customized plan to help them achieve their long-term goals. Her philosophy is to go above and beyond her role as a wealth manager to be a true thought partner and champion for her clients.