Q. My understanding of Social Security is that your benefit is based upon an average of your last three years of earnings. My wife (age 60) would like to draw at age 62, using savings as a bridge from now until then. She is currently earning about $150,000. If she took some part-time work for a year or two, is there a way to keep that diminished income out of the average? ---G. L., by email from Salem, OR

A. Social Security benefits are calculated on a much longer time basis, all adjusted for inflation, using a complicated formula. The formula uses your highest 35 years of earnings.

If she visits the Social Security website, www.ssa.gov, she can use a number of calculators to estimate her future benefits. Recently, an improved calculator was introduced that will access your actual work record and make more accurate calculations without your having to enter your entire earnings record. This calculator can be accessed at this link: http://ssa.gov/estimator.  

While working part time for a few years will have some impact on her future benefit, you will both be surprised at how small that impact is. Most people don’t understand that the Social Security benefit formula is weighted to give the largest amount of benefits to low-wage earners. As a result, higher-wage earners get only very small benefit increases for higher wages.

Those with average monthly wages below $711 this year, for instance, are credited with 90 percent of those wages for benefit calculations. If your monthly wages are over $4,288, however, the crediting rate is only 15 percent. The difference amounts to a very steep, but hidden, progressive “tax” on benefit eligibility. As a consequence, working part time for a few years should have little impact on the benefits your wife receives.

Q. Could you clarify an interesting article in the most recent AARP magazine? The article talks about those who sell securities held for more than a year as being exempt from capital gains tax in 2008 through 2010. This is clear, but my question involves bonds. The question I have revolves around the following quote:

"The freebie - even better than the 5 percent tax such filers paid last year - seems tailor-made for retirees with lower incomes who have stocks and bonds to sell."

Does this apply to savings bonds?

In our case, my wife and I purchased $1,500 in I Savings Bonds each of the last 24 months we worked (June 2000 through June 2006). These bonds have done really well - but with our combined retirement pay, our marginal tax rate is 15 percent. So the interest earnings of our savings bonds would be reduced by that same 15 percent for those we cash. But can the earnings be considered capital gains and fall under the exemption mentioned in the AARP article?

Where should we put the funds from the bonds, if we cash them, these days? Our combined taxable income after deductions is in the $45,000 range. We are 60 and 61 years of age, respectively, and expect to start taking Social Security payments at 62 ($850/month for my wife and $1,400/month for me).  ---R. H., by email from Spring Branch, TX

A. Sorry, but the entire difference between what you paid for the bonds and what you redeem them for will be considered ordinary income, taxable at regular rates.

Also, you should be VERY slow to redeem the I Savings Bonds you bought in 2000 and early 2001. They’re real “keepers.” Those bonds have a real yield of 3.6 percent to 3.0 percent, excluding the inflation adjustment. That means your yield for the current year could be close to 9 percent. You won’t beat that anywhere, so you should hold them as long as possible.

If you check the historical record of the premium over inflation on I Savings Bonds, you’ll find that it has steadily declined in recent years, reaching zero (yes, you read that right, ZERO) for bonds issued in the current May-October period.