Millions of Americans may face a surprise reduction in their Social Security benefits this month due to an often-overlooked factor: the 35-year rule. This rule determines benefits based on a worker’s 35 highest-earning years, meaning any year below 35 counts as zero, potentially lowering the average and reducing benefits. Since many people don’t know how this calculation works, the 35-year rule can significantly impact future income for those relying heavily on Social Security during retirement.
How the 35-Year Rule Affects Social Security Benefits
Social Security benefits are calculated using a worker’s average indexed monthly earnings (AIME), derived from their 35 highest-earning years. If someone doesn’t have a full 35-year work history, Social Security fills in the gap with zero-earning years, which lowers the calculated benefit amount.
1. Working Fewer Than 35 Years
- Example: 30 Years of Work
If you’ve worked 30 years, Social Security will add five zero-income years to your average, lowering the overall AIME and reducing the monthly benefit. - Example: 20 Years of Work
For a 20-year work history, 15 years of zero income will be included in the calculation, reducing benefits substantially.
2. Working More Than 35 Years
- For those with over 35 years of employment, Social Security considers only the highest-earning years, ignoring lower-earning ones. This means that longer work histories can maximize benefits by focusing solely on the top-earning years.
This rule can be particularly impactful for those with sporadic employment histories—often those who took time off for family care, raising children, or pursuing education. If you aim to retire early and expect to rely on Social Security, it’s essential to understand how missing years may affect your benefits.
The 35-Year Rule and Early Retirement Communities
Reddit users recently pointed out how little-known this 35-year rule is, particularly among those interested in early retirement (FIRE, or “Financial Independence, Retire Early”). While some early retirees may not depend on Social Security, others are surprised to find out how missing years could significantly reduce their benefits. Although many in the FIRE community are saving aggressively to avoid relying on Social Security, understanding this rule can help them plan better and avoid unexpected benefit reductions.
Steps to Increase Your Social Security Benefits if You Lack 35 Years
Even if you’re nearing retirement without a complete 35-year history, you can take steps to boost your Social Security benefits:
- Work Additional Years
If possible, adding extra working years—even at reduced pay—replaces zero-income years and raises your average indexed earnings. Each year of income added lowers the impact of the zero years, potentially leading to a higher monthly benefit. - Consider Part-Time Work
Part-time work can make a difference if it replaces a zero-income year, particularly if you’re close to retirement. Even modest earnings are better than a zero and can increase your monthly benefits. - Consult a Financial Advisor
Financial advisors can help analyze your Social Security estimates and strategize ways to increase your benefits. They can also provide insight into the impact of delaying retirement or adding additional working years to improve your benefit amount.
Why Understanding the 35-Year Rule Is Crucial for Retirement Planning
The 35-year rule can have a significant impact on your retirement income, especially if you’re planning to retire early or have gaps in your work history. Missing even a few years could create a considerable shortfall over time, especially as people are living longer and relying on retirement savings and Social Security to last longer. Being aware of this rule allows you to make informed adjustments to your retirement plan and can help you avoid surprises in your retirement income.
Speaking with a financial advisor can help you understand how the 35-year rule may apply to your unique circumstances, ensuring you’re well-prepared to maximize your Social Security benefits. Taking the time to understand this rule now could mean the difference between a comfortable retirement and an unexpected financial shortfall.
How many years are needed to maximize Social Security benefits?
You need at least 35 years of earnings to avoid zeros in the calculation and potentially maximize your benefit amount.
What happens if I work more than 35 years?
Only your highest-earning 35 years are considered. Additional years are disregarded, allowing you to replace lower-earning years with higher-earning ones if possible.
Can part-time work close to retirement affect my Social Security benefits?
Yes, even part-time work can replace a zero-income year, slightly increasing your average and thus your monthly benefit amount.
