22 July 2008

Retirement: When Minimum Wage is Maximum Wage

U.S. minimum wage going up: As of this week the minimum wage in the U.S. will be $6.55/hour. And for retirees between 62 and 66 who are already drawing Social Security, that will be (just about) their maximum earnings limit without offsetting some of their retirement check. Rounding the figures for convenience:

Minimum wage of $6.55 = $13K per year income
Maximum "extra" wages for boomer on Social Security = $13K

Early retirees draw a percentage of "full retirement." Leaving the workforce early (for the current crop of leading boomers, that's before age 66) is allowed but the Social Security benefit is reduced by up to 30%, with the reduction running 5-7% per year of age. I'm referring to retirees at the start of the baby boom, meaning birth year 1946 and later. For a full breakdown on percents and year of birth, see Full Retirement Age at Social Security Online (www.socialsecurity.gov, a site that is sure to need no SEO* in the coming years).

What's wage got to do with it? Age 62 retiring boomers have an earnings limit of about $13,000 after which Social Security benefits are effectively "reduced" by about a third. So, if your Social Security benefit is $12,000, you can earn $13,000 from a job with no penalty. But if your total income goes above $25,000 for the year, your "extra income" will be offset by a reduction in SS benefit. Fancy math and a consult with the folks at Social Security may assure you that upon "full retirement" age, an "early" penalty may work in your favor eventually. The point is, you'll need to do some figuring. (After full retirement age, no figuring is needed as there is no limit on earnings from that point onward.)

The comparison between minimum and maximum wages: Just by coincidence, the 2008 increased minimum wage is approximately the same amount as the early retirees' maximum extra wage. $6.55/hour for 40 hrs/week for 52 weeks/year = $13,624. The earnings limit under Social Security was $12,960 for 2007; it will be $13,560 for 2008.

A handy formula that's realistic for converting hourly wage to annual income is to multiple $6.50 times 2000, because that's very close to a full year's work with a couple of weeks off. This formula permits you to quickly inform your threatening-to-drop-out adolescent relative that the outstanding job paying $7 an hour is actually only $14K a year. And the even more outstanding wage of $8 comes to only $16K a year. It's amazing how many adolescents marvel at the arithmetic. Eventually, they realize it was simple multiplication. (Or maybe if they drop out, they won't.)

*SEO: Search engine optimization, or processes whereby Internet publishers increase the volume of "traffic" to web sites. ~ Lida

© 2008 Mary Bold, PhD, CFLE. The content of this blog or related web sites created by Mary Bold (www.marybold.com, www.boldproductions.com, College Intern Blog) is not under any circumstances to be regarded as professional, legal, financial, or medical advice. Or education advice. Or marital advice. Or even a tip.

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