Social Security is an important source of income for millions of seniors, so it pays to get the most money possible out of those benefits. For some people, that means holding off on Social Security past full retirement age (FRA), which is 66, 67, or somewhere in between, to accrue delayed retirement credits that boost benefits by 8% annually. You’re eligible for those credits until you turn 70, so if you’re looking at an FRA of 67, you have the potential to increase your benefits by 24%.
But you don’t actually need to hold off on claiming benefits to snag an increase. Believe it or not, there’s one thing you can do to boost your benefits after you’ve already filed for them: keep working.
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Your earnings matter
Your Social Security benefits are calculated based on your 35 highest years of earnings. Most people, however, earn less early in their careers than later, and while that’s partly due to the fact that the premium for entry-level workers isn’t what it is for experienced employees, it’s also because inflation causes wages to naturally rise over time. As such, those 35 highest working years used to determine your Social Security benefits are actually indexed for inflation so that the money you earned in, say, 1980 is adjusted to reflect what your salary back then would look like in today’s dollars.
When you continue working later in life, you’re generally able to replace a lower-earning year with a higher-earning year, thereby boosting your benefits as a result. But you can employ this strategy even if you decide not to wait as long as possible (age 70) to claim Social Security.
Let’s imagine you decide to file for benefits at your FRA of 67, only you continue to work at that time. First, once you reach FRA, the Social Security Administration (SSA) will allow you to earn as much money as you’d like without withholding any amount of the benefit payments you’re entitled to. Second, if your continued earnings are such that they raise your benefit amount, the SSA will adjust your benefits to reflect that change.
For example, if you file for Social Security at your FRA of 67 in 2019 but work during 2019 and earn enough to replace a year of lower earnings, the SSA will recalculate your benefits in December 2020 and add on whatever additional amount you’re entitled to. Furthermore, your increase will be retroactive to January 2020.
Why work and collect Social Security simultaneously?
Since Social Security benefits automatically grow 8% for each year they’re delayed past FRA, you might wonder why someone would choose to file at FRA if the option to collect a paycheck still exists. After all, you generally stand to boost your benefits far more substantially by snagging that 8% bump than by replacing a year, or even several years, of lower earnings with higher income.
The answer, however, might boil down to simply wanting those benefits earlier in life. Let’s say the earnings from your job are such that you’re able to easily pay your bills, but they’re not enough to fund two exotic vacations a year. If you want to enjoy those vacations while you’re relatively young, you might file for benefits to get that money, use it as you please, and continue working all the while.
Delaying Social Security past FRA is a good way to increase your benefits for life. But if that’s not an option you care to pursue, working later in life can achieve the same goal, albeit to a lesser extent.