How Working Longer Affects Your Social Security Benefits

Social Security

The number of years you spend working affects your Social Security benefits when you retire, but many people do not realize how the system works. Some opt to retire at an earlier age while others continue to work as long as they can before retiring for good. There are quite a few myths and inaccurate information out there about working and Social Security benefits. Here is the real scoop about how working longer affects your Social Security Benefits.

Can working longer give you more Social Security Benefits?

Some workers opt to remain in the workforce years past the time when they can retire and draw their Social Security benefits. They anticipate a long lifespan and want to increase the benefits for a higher income when they will no longer be able to work to earn income. Is the strategy one that will pay off for them? The Motley Fool explains that working a few more years past the allowed retirement age can boost your monthly payments by building up delayed retirement credits during the period. It’s especially true for workers who do not have a minimum 35-year work history during their careers, or if earnings are higher toward the end of their working careers. Putting in the extra years is a wise decision if the end goal is to have a higher monthly income from Social Security.

Understanding how Social Security Benefits are determined

The benefits you receive from Social Security upon retirement are calculated on 35 years of your work history with an inflation adjustment to your income, year after year. If you have not worked for a full 35 years throughout your lifetime and you’re approaching retirement, there will be gaps in the equation that could make a difference in the total monthly benefits check you will receive. Social Security assigns dollar values for each year that you have eligible earnings on your work record. For each year there are no eligible earnings, you will receive a factor of $0. It’s easy to understand how this could reduce your monthly benefits when the calculations get completed. Taking a few extra years to fill in the gaps can help boost those years for which there is a zero value assigned. It could make a significant difference. Extending your career into your 60s could make a difference in the total amount you will receive.

Can working longer boost your benefits if you have 35 years or more on record?

Even if you’ve worked for 35 years or more, you can still boost your social security income under some conditions. If you earn more during your last years of employment after retirement age, the income can be used to calculate your Social Security income by replacing the lowest earnings years with higher earnings years. Higher annual income figures will kick out the lower-income years and make a difference in the amount of your benefits.

Does working longer always raise Social Security Benefits?

In some cases, working longer may not raise your Social Security Benefits. If you work for less money than you made for the previous 35 years, it won’t make a difference. Social Security uses the highest amounts earned, so you’re putting in time that won’t count toward raising the calculations on income figures combined and then averaged. If you collect spousal benefits that are higher than your benefits, working longer may not help you gain more. Spouses are entitled to collect up to 50 percent of their spouse’s retirement benefits if they don’t have an earnings record. The Social Security Administration grants up to 50 percent of spousal benefits or individual earnings benefits, whichever of the two is the largest.

When is the Full Retirement Age for Social Security Benefits?

The Full Retirement Age depends on the year you were born. Persons born between 1943 to 1954 can retire fully at age 66. In 1955, the retirement age is 66 years and 2 months. From 1956 through 1959, add two months to the retirement age of 66. For those born in 1960, the retirement age is 67 years.

Other ways to boost your Social Security benefits from working longer

Working longer can boost your Social Security benefits monthly amount through the accrual of delayed retirement credits. For each year you work past your full retirement age up to age 70, your benefits will increase by 8 percent. The accumulation of delayed retirement credits stops at age 70, so working past that age will not gain any further delayed credits. Taking an early retirement at age 62 will cause the amount of your monthly benefits to be less than if you delay until full retirement age or work beyond full retirement age. It gives those approaching retirement a lot to consider.

Can you still work and earn income after retirement?

The Street confirms that you can work after you reach your full retirement age with no restrictions on the earnings you can receive. You must continue to pay taxes such as FICA taxes and social security withholding taxes. You do not need to pay these taxes on disability or pension income. It only applies to work that you do to earn an income.

Retiring at a younger age reduces your Social Security Benefit

The Social Security Administration confirms that filing before your full retirement age affects your benefit check. You not only receive a lower monthly check, but the Social Security Administration imposes limits on the amount you can earn from employment while drawing your monthly benefits. Before the full retirement age, there is a limit of $19,500 per year to keep the full amount of benefits rolling in. Social Security benefits are decreased by $1 for every $2 over the limit you earn.

Final thoughts

We’ve provided an overview of the current rules for drawing Social Security Benefits as of 2022. The rules may change when you’re full or partial retirement age. It pays to stay on top of the rules and plan your future accordingly.

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