The impact of NQDC on social security benefits

• Author: Marla J. Aspinwall - Michael G. Goldstein
• Pages: 317-323

277

CHAPTER XIII

THE IMPACT OF NQDC ON SOCIAL SECURITY BENEFITS

I. INTRODUCTION

In planning for retirement, many employees look to nonqualified deferred compensation

(“NQDC”) to fill the “retirement gap.” For example, an employee may estimate that he or she

will need an amount equal to 75% of his or her regular salary each year to retire comfortably.

The employee first will consider the amounts he or she will receive each year from: (i) qualified

plans and (ii) old age (retirement) Social Security benefits. NQDC can help fill the “gap”

between the amount needed and the amount expected from qualified plans and Social Security.

However, in certain cases, NQDC benefits can reduce an employee’s Social Security benefits.

A.

Eligibility and Amount. In general, in order to receive old age (retirement) Social

Security benefits, an individual must be at least 62 years old and have acquired the requisite

number of “quarters” of coverage (generally 40 quarters are required to be fully insured).1 This

merely makes an individual eligible to receive benefits. The actual amount of old age

(retirement) benefits an individual will receive depends on several factors, including: (i) the

number of years worked by the individual; (ii) the amounts earned by the individual; (iii) the cost

of living adjustments; and (iv) the age at which the individual retires.2

An employee retiring in January 2012 at age 66 entitled to the maximum benefit available

(as a result of earning in excess of the applicable annual wage ceiling each year while working),

would receive a monthly benefit equal to approximately $2,399.3 Thus, the annual maximum old

age benefit in 2012 is approximately $28,788.

B.

Incentive to Continue Working. Several changes in the Social Security provisions

will encourage people to work until a more advanced age in the future. First, the normal

retirement age for Social Security benefit purposes will increase from age 65 for persons born in

1 20 CFR § 404.101(a); 20 CFR § 404.110(b)(1); 42 U.S.C.A. § 414(a)(3).

2 See e.g., 20 CFR § 404.404.220, 221; 20 CFR § 404.404.401; for online benefits calculator see

www.ssa.gov/planners/calculators.htm.

3 See www.ssa.gov/planners/calculators.htm.