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Perspectives: Your income, on paper
How your earnings can impact retirement
This issue of Perspectives is a guest essay from Jacqueline Hilgert. I met Jackie in 2021, when she was the Editor-in-Chief of BankBeat magazine and I was on the precipice of a career pivot. I was a contributing editor at BankBeat for more than two years, so I worked closely with Jackie.
Jackie is now a semi-retired, Minnesota-based writer.
ABY note for readers outside of the United States: Social Security is the federal retirement benefit in the U.S. The monthly amount paid in retirement by the Social Security Administration (SSA) is based on your earnings throughout your lifetime — both as an employee and if you’re self-employed. The higher your earnings, the higher your benefit.
Social Security also currently faces a funding shortfall. Benefits are expected to be reduced to 75% of current levels after 2035.
I received my first Social Security Statement about three months before I turned 60. If you’ve never seen or received one of these, they make for an interesting take on your life as a wage earner. That is, if you don’t mind your life story being reduced to earned income.
I took my first wage-earning job at 14 and according to the report, by age 20, had earned a whopping $5,448. It was a different time, of course. I mean, a gallon of gas went for about $1.20 and there were always lines of cars waiting to fill up.
The Social Security Statement exists to allow you to review your earnings by year for accuracy so that you will receive the benefits you’ve earned after paying into the system throughout the course of your career. You need at least 10 years of work to even qualify for retirement benefits through the Social Security Administration (SSA), and your annual benefit at full retirement is based on your highest 35 years of earnings.
It’s that last piece that can become challenging for the solopreneur (or the stay-at-home parent).
When I review my statement, my eye travels to the period between 2008 and 2017, the decade I struck out on my own after saying goodbye to a well-paying albeit stressful job.
According to the statement, my earnings in 2008 were exactly half of what they were in 2007. In 2009, my earnings were exactly half of what they were in 2008. In 2010, my earnings slid an additional 25 percent. Income in freefall seems to be the obvious takeaway here, but that’s not even close to the real story.
I launched my freelance business just as the economy was headed south. Remember the Great Recession? Yeah, that was 2008.
But it wasn’t all bad news; I had a strong network and was nimble enough to pivot my services toward recession-proof businesses. While my business plan originally had me targeting high-net-worth individuals for personal histories, I had writing, marketing and design skills that businesses needed. Importantly, I retained my former employer as a central client, which allowed me a base income on which I could build a pretty nice business.
Oh, and that slide in taxable earnings I mentioned earlier: that was intentional. Every tax expert worth their weight will tell you, on paper, to run all of your allowable expenses through your business to reduce, reduce, reduce your taxable income. This is what every corporation does, and I was a corporation too, an LLC to be exact.
The decade I spent as a solopreneur allowed me to pursue lifelong goals such as moving to the country, establishing a vineyard, volunteering with organizations that shared my values, pursuing a master’s degree in creative writing, and even teaching.
Let’s not forget being my own boss. That’s generally priceless.
I cannot assign a value to the meaningful work and other creative endeavors I pursued during the decade I worked solo, yet the SSA does, and the value is based on net income that I worked so hard to keep low. So be it.
In late 2017, I stood at a crossroads where two viable and interesting opportunities presented at the same time. One would extend my freelance life by opening new lines of work; the other would require me to shutter my business and return to a traditional employer-employee relationship.
I am a Libra, the astrological sign of balanced scales. Choosing between two equally attractive opportunities is hard for me.
I needed help tipping the scale, so I sought the counsel of a friend who is a respected CPA. His advice? Take the job and negotiate the highest salary possible.
At the time, I still thought of retirement as a destination to visit “someday.” He brought me home to reality by telling me I needed to start thinking about those Social Security credits. I was still in my 50s, but the years I had left to boost my earnings were numbered.
A Social Security Statement comes to me annually now, every July. When I review it, I try not to be sad about those years of low earnings. I focus instead on the great experiences I had during that decade, things that continue to define me today. I wouldn’t trade that time for the money even if I could.
My Social Security benefit will be lower than it could have been because of my choices back then. I admit to not understanding then how the system worked, and I can’t say for certain that I’d have chosen differently had I known.
I doubt it.
(Jackie is holding out until at least age 65 before claiming her Social Security benefit.)
ABY Note: This article in no way constitutes legal or financial advice. Please consult with a professional to discuss your unique retirement situation, based on your location, family, and other variables.
Self-employment, in particular, has a lot of factors. Here are some additional resources for U.S.-based folks.
How Social Security Works if You’re Self-Employed | Social Security Administration
Jeremy Wells, CFO for Online Entrepreneurs | YouTube (I’ve met with Jeremy - he’s great!)
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