One of the most misunderstood Social Security issues is how working past age 62 affects retirement benefits.
Misunderstandings often cause people to make the wrong decisions about claiming benefits or mislead them about the likely level of benefits.
You can begin claiming Social Security retirement benefits as early as age 62, whether you are working or not. The starting level of the benefits increases each month you wait to claim benefits through age 70. There are no increases for delaying claims after age 70.
Though they’re called retirement benefits, a beneficiary doesn’t have to retire to claim them. You can continue to work for salary or other compensation.
Continuing to earn income might increase your benefits, whether you’re already claiming benefits or not. It’s important to know how working could increase or not increase benefits, because that might change your decisions.
Social Security retirement benefits are calculated using your 35 highest-earning years. The earnings are indexed for inflation to put them in today’s dollars. Those who don’t have 35 years of earnings are assigned an income of $0 for each of the missing years.
Only earnings up to the Social Security maximum wage base for the year are used to compute benefits. Any compensation exceeding that amount doesn’t affect benefits.
I won’t go further into the mechanics of how benefits are calculated from lifetime earnings.
Early in our careers, most of had lower earnings and earned less than the maximum wage base, even after indexing for wage inflation. Many people had years with little or no earnings because they weren’t in the work force full time, either voluntarily or involuntarily.
That means if you work another year and earn more than you did in an earlier year (after indexing for inflation), the earnings in the latest year will replace earnings from an earlier year among your highest 35 years. If you don’t already have 35 years of earnings, working another year will replace an earlier year with no income.
After knowing this, some people find that working another year or few years will replace very low-earning years with higher-earning years and meaningfully increase their Social Security benefits. Others realize they already have 35 high-earning years; working more years would have little or no effect on their retirement benefits.
The monthly increase in benefits will depend on the number of low-earning years that are replaced and the dollar differences between the earnings in the latest year and the earlier year that’s being replaced, after adjusting the lower-earning year for wage inflation.
Another factor is your income level. Middle- and lower-income workers receive benefits that replace a higher percentage of their working years’ income than upper-income earners. Benefits are calculated so that a median earner will receive Social Security retirement benefits that replace about 40% of final income.
After you turn 62, Social Security recalculates your benefits every year you don’t claim benefits. It will take your earnings for the latest year, add that to your record of lifetime earnings and select the 35 years with the highest inflation-adjusted earnings.
For some, the effects of working longer are so powerful that working for only another three to six months would have the same impact on a retirement standard of living as saving an additional percentage point of earnings each year for 30 years, according to the study “The Power of Working Longer” by Gila Bronshtein, Jason Scott, John B. Shoven and Sita N. Slavov, published by the National Bureau of Economic Research.
After the monthly benefit increase from working longer is calculated, you’ll receive those higher benefits every month for the rest of your life no matter how long you live. In addition, Social Security retirement benefits are indexed for inflation.
A seemingly small increase in monthly benefits can compound to a meaningful lifetime sum when you’re retired for a couple of decades or longer and the benefits increase with inflation.
It’s important to know the rules for those who work while receiving Social Security retirement benefits.
In that case, the calculation of your retirement benefits is a rolling, annual process.
Each year Social Security reviews the records of all Social Security recipients who work. If earnings in the latest year turn out to be among your 35 highest years, replacing an earlier lower-earning year, Social Security will refigure your benefit and pay you any increase due. This is an automatic process.
The additional benefits will be paid in December of the following year.
For example, if you worked and also received Social Security retirement benefits in 2024, in December 2025 you should receive an additional payment reflecting an increase in your 2024 benefits, if the earnings in 2024 raised your benefit. Your monthly benefits going forward also will be adjusted for the increase. This will occur each year you have earned income.
Another factor to review is the earnings limit imposed on those who receive Social Security benefits after age 62 and before full retirement age.
At certain ages, if you earn “too much” money while claiming retirement benefits, your retirement benefits will be reduced. But the decrease is only temporary. You’ll get it back later.
There’s no longer an earnings limit after you reach full retirement age (FRA). After that age, you’ll receive full benefits no much how much money you continue to earn while working.
When you’re younger than FRA during the entire calendar year, Social Security will deduct $1 from your benefits for each $2 you earn above the earnings limit. The limit is indexed for inflation each year and is $23,400 in 2025.
The rule is different in the year you reach FRA. In the year you reach FRA you lose $1 of benefits for each $3 you earn above the limit until the month you reach FRA. In addition, the earnings limit is much higher in the year you reach FRA, $62,160 in 2025.
But losing some or all of your benefits because of the earnings limit isn’t a disaster. The loss of benefits is temporary.
The additional earnings are added to your lifetime earnings record and could replace lower earnings from earlier years.
Also, after you reach FRA, the benefits forfeited in earlier years will be used to increase future benefits. Exceeding the earnings limit is more like a deferral or withholding of benefits than a loss of benefits.
You don’t have to guess how the earnings limit would affect you.
The Social Security web site has a Retirement Earnings Test Calculator. Enter your birth date and a few other details, and the calculator will tell the amount, if any, by which your benefits would be reduced based on the amount of earnings you expect.
You don’t have to open a “my Social Security” account to use this calculator, but you can use a more robust calculator and save the results by opening an account.
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