Unexplored Factor Leading to a Boost in Social Security Benefits when Continuing Employment Post-Claim
Unexplored Factor Leading to a Boost in Social Security Benefits when Continuing Employment Post-Claim
False, as many retirees have discovered. Social Security conducts an annual evaluation known as the cost-of-living adjustment (COLA). These adjustments increase everyone's benefits.
However, COLAs aren't the only means by which retirement benefits may improve. Here's a little-known fact about how working after claiming Social Security might enhance your benefits.
Won't working after claiming Social Security reduce benefits, though?
Some individuals might already be questioning this claim. Doesn't working after claiming Social Security decrease benefits instead of increasing them? In certain cases, yes - but only temporarily.
The underlying principle behind this objection is the early retirement earnings test. If you retire prior to your full retirement age (FRA) and continue to work, Social Security may withhold a portion of your retirement benefits if your earnings surpass a specific level.
In 2025, Social Security will deduct $1 in benefits for each $2 earned above $23,400 by retirees who haven't reached their FRA. During the year you reach your FRA, however, Social Security will deduct $1 in benefits for every $3 earned over $62,160 until the month you reach your FRA.
You're right, therefore, that working after claiming Social Security could decrease your benefits in this scenario. However, you'll receive all the withheld benefits once you reach your FRA. Additionally, if you work after your FRA, Social Security won't deduct any of your benefits.
It's worth noting that only wages (including bonuses, commissions, and vacation pay) are considered earnings with this early retirement earnings test. Social Security won't factor in money received from annuities, investments, pensions, veterans benefits, or other retirement benefits.
The Social Security secret that many retirees aren't aware of
Nonetheless, working after claiming Social Security retirement benefits could also potentially enhance your benefits for the rest of your life. This could even be the case in instances where you make more money than the early retirement earnings limits.
How can this be possible? The secret lies in the Social Security Administration (SSA) recalculating your benefit amount if you continue working. It's possible that your earnings could result in a higher benefit.
The crucial point to remember here is that SSA uses your 35 highest earnings years to calculate your retirement benefits. If you earn more during a year when you return to work after claiming retirement benefits than you did during a year earlier in your career, your retirement benefits will be adjusted higher.
Certainly, it's a bit more intricate than that. SSA first adjusts (or indexes) your earnings to account for overall changes in wages due to an increase in the standard of living. However, the basic concept still applies: if you earn more by returning to work than any of the indexed 35 years already in your earnings history, your latest year of work will replace your lowest earnings year. And your retirement benefit will increase.
This scenario could easily occur if you return to work for a while in a job similar to the one you held when you initially retired. Many people increase their income significantly as they progress through their careers.
Should you return to work after retiring?
I suspect many retirees are put off by the thought of returning to work. If your income from Social Security and other sources is sufficient to support a comfortable retirement, you won't need to even consider the idea.
However, some people claim Social Security retirement benefits and then later realize they're not making enough to maintain the lifestyle they're accustomed to. If you find yourself in this group, returning to work could enable you to quickly boost your income. It could also potentially increase your retirement benefits permanently.
Working beyond your full retirement age (FRA) can potentially increase your Social Security benefits, contrary to common belief. If your earnings during this period exceed a certain level, Social Security may temporarily withhold some of your benefits, but you'll receive these withheld amounts once you reach your FRA. Furthermore, Social Security won't deduct any of your benefits if you work past your FRA. This recalculation of benefits is based on your 35 highest-earning years, and if your latest year of work results in higher earnings than any previous years, your retirement benefit will increase.