A layoff or buyout now
can take big bite out
of Social Security later

Check out our examples and your situation, below.

By Jim Gold
  A buyout or layoff might be a kick in the butt now, but it can take a bite out of your Social Security benefits later, too.

  Newspaper readerThink of it as the takeaway that keeps on taking away, whether you were just starting your job or especially if you are about 10 years from your planned retirement.

And that's assuming you can count on Social Security being there. The government reported in May that Social Security could run out of funds in 2037, four years earlier than previous estimates.

  But let's say for now that both you and Social Security will be around when you turn 66 or 67, your likely retirement age.

  Each worker’s situation will be different, but the Social Security Administration’s online calculator indicates a drop of $40,000 over a 25-year retirement is possible for someone who can't get a job. And if one spouse also collects half the benefit based on the other's work record, that could inflate the problem to $60,000. 

Coping after buyout
  A photo editor, Mike Rynearson took a Gannett buyout in 2008 at age 53 after 25+ years at The Arizona Republic.
  If he doesn't pay into the Social Security system again and starts collecting early retirement benefits at age 62, the benefit will be $33 less each month than if he had kept working at the same pay; if he waits until age 66, the difference will be $90 a month.

Ryneason  Over 25 years, that difference will add up to $9,900 for early retirement, $27,000 for retiring at age 66.

  "It doesn't seem like a lot each month, but it really does add up over time," Rynearson said.

  So he's looking into starting an outside photo/publishing business with an e-trade component to help add to his Social Security earnings credits.

Job outlook grim

  Anyone who can swiftly nab a new job paying around the same as the old won't see much impact. But how bright are those prospects?

  The U.S. Department of Labor reported the April jobless rate rose to 8.9 percent.

"Since the recession began in December 2007, 5.7 million jobs have been lost," the department said.

  PaperCuts reports more than 25,000 newspaper job losses in 2008 and 2009. Journalismjobs.com carried postings of only 168 newspaper and wire service jobs as of May 15.

  Jan Northup, author and president of 29-year-old Management Training Systems, Inc. in Glendale, Ariz., works with companies on hiring choices.

  “Organizations that are hiring, they know there are a lot of people out there, a good talent pool to draw from. They may offer lower pay.”

  And lower pay may mean lower Social Security benefits later on.  

Rebalancing act ahead 

  With lower Social Security benefits, decimated 401(k)s and frozen pensions, how do you make up the difference?

  "It's simple," said Emil Guillermo, financial specialist and jilted journalist in Northern California. "Live on less. Save more. Depressing, eh?"

  The only way to make up the difference is to save in tax-deferred instruments and hope they compound at a rate that will "take you to the promised land," he said. His other tips:

  • Cutting back: "Saving when you're making less isn't easy. In the halcyon days people talked about saving hundreds of dollars a year by cutting back on Starbucks lattes. Now you may have to cut back on the McDonald's coffee too."
  • See opportunity: "If you make less money than before, it may be easier for you and your spouse to qualify for a Roth. Or you can open up a deferred annuity with your after-tax dollars."
  • Don't tap the 401(k): "The 10 percent penalty on top of taxes makes it 'don't touch' money, unless you're desperate. Put yourself in a savings first mindset; you're likely to do the right thing."
  • Get help: Call an adviser to help you make sure your money grows tax-deferred in an investment that fits your risk tolerance profile.

Estimating your Social Security benefits 
  Social Security benefits are based on a worker's lifetime, according to the Social Security Administration's Web site. “Your actual earnings are first adjusted or 'indexed' to account for changes in average wages since the year the earnings were received. Then we calculate your average monthly indexed earnings during the 35 years in which you earned the most.”
  Got that?
  A layoff or buyout could mean you don't get in a full 35 years, which would bring down that average. 
  To ease your calculations, the Social Security Web site
offers a variety of online help, including personal statements.

  Another, simply called “online calculator” lets you plug in your birth date, retirement age, year-by-year earnings and estimates for future earnings, if any. It shows results for the worker’s benefit, disability benefits, and survivor benefits.

  Results change day by day, and by exact birthday and retirement date and earnings history.
Here are exercises for two long-time employees. The first, say, is an executive editor; the other started when copy boys were still around and got promoted to copy editor over time. Both plan to retire at age 66 in 2019. (Results are reported in today’s dollars.)

Annual
income
from
1975-2009
Monthly
benefit
if salary
continues
Monthly
benefit
if salary
is cut 1/3
Monthly
benefit
if salary
is cut 2/3
Monthly
benefit
if lose
all salary
Always over max
contribution rate
($14,100 in 1975;
 $106,800 in 2009)
 $2,443


$2,356,
or $87 less;
$26,100 over
25 years
$2,337,
or $106 less;
$31,800 over
25 years
$2,327,
or $116 less;
$34,800 over
25 years
Starts at $5,000
in '75, grows
$1,000 a year
until '09, when it
reaches $39,000
 $1,463



$1,403,
or $60 less;
$18,000 over
25 years
$1,401,
or $62 less;
$18,600 over
25 years
 $1,401,
or $62 less;
$18,600 over
25 years
(no further loss)
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