Will my social security increase if i continue to work

Although traditionally many Americans have envisioned retirement age as 65, according to the Social Security Administration, for those born in 1960 or later “full retirement age” is actually 67. Yet, you can file for your Social Security retirement benefits as early as age 62 or as late as age 70.

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There are additional variables that can make the whole subject of Social Security benefits even more confusing, from the reduction in benefits paid if you continue working after filing and the potential for the taxation of your benefits if you earn too much money.

All of these questions can be distilled down into one: Does working after full retirement age increase Social Security benefits?

For the purposes of calculating your retirement benefit, working after full retirement age is essentially the same as working before. After all, you’ll continue to pay Social Security taxes on your earnings as long as you work, so you’re still eligible to derive benefits from those earnings.

But your actual benefit will increase only if you’re still earning at a level that equals or exceeds your top 35 working years. If your earnings are less, they won’t affect your benefit because the SSA uses your top 35 years of earnings to calculate what you’re paid.

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In this sense, it’s not worth it to continue working from full retirement age to age 70 if you aren’t earning much, at least from a Social Security benefit perspective. Obviously, you’ll still get to keep the money you earn; but, unless those years are among your top 35, your Social Security retirement benefit won’t increase.

Working After Beginning Benefits May Temporarily Reduce Them

If you file for Social Security benefits before your full retirement age but keep working, the Social Security Administration will temporarily reduce your benefit payments. For 2022, the amount of the reduction is $1 for each $2 you earn above $19,560.

If you reach full retirement age in 2022, the reduction drops to $1 for every $3 you earn above $51,960, until the month you reach full retirement age. Thereafter, there is no reduction no matter how much you earn.

Bear in mind that these reductions are only temporary. Once you reach full retirement age, your monthly benefit will be adjusted upwards to compensate you for the original reductions.

Earning Too Much May Reduce Your Net Earnings Due to Taxation

Although you may boost your Social Security payout if you continue to earn at high levels, you may find that your net earnings actually decrease because your benefits have become taxable.

If you file taxes as an individual and your combined income is between $25,000 and $34,000, up to 50% of your benefits may be taxable. Above $34,000, as much as 85% of your Social Security benefits will be taxable.

For joint filers, the threshold for 85% taxation is $44,000, with amounts between $32,000 and $44,000 subject to taxes of up to 50%.

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This article originally appeared on GOBankingRates.com: Does Working After Full Retirement Age Increase Your Social Security Benefits?

Dear Carrie,

I'm turning 70 and about to start collecting Social Security even though I'm still working and intend to keep working for a couple more years. Since I'm past full retirement age, will I continue to pay Social Security taxes? Also, will continuing to work affect my monthly benefit?

—A Reader

Dear Reader, 

First, congratulations on waiting until 70 to collect your Social Security benefits. By doing so, you maximized your monthly payout. That's a smart move for many folks!

But while Uncle Sam gives you a bonus for waiting to collect Social Security benefits, he doesn't give you a dispensation from paying Social Security taxes. As long as you have earned income (such as wages), you're required to pay Social Security taxes on up to the annual payroll limitation—$147,000 in 2022. So, yes, if you continue to work, you'll continue to pay into Social Security and other payroll taxes.

Fortunately for you, since you're past your full retirement age (FRA), there's no benefit reduction based on income. You're entitled to full benefits no matter your income level. However, earned income may impact your benefit if you take Social Security before your FRA.

Whether or not your continued income has a positive effect on the amount of your monthly Social Security benefit depends on how much money you made in the past and how much you're making now. Here's why.

Social Security benefits are based on your 35 highest-earning years

The actual calculation to determine your Social Security monthly benefit is rather complex, but basically it's determined by your 35 highest-earning years, adjusted for inflation—up to the maximum taxable amount each year.

This ends up putting a cap on the maximum monthly benefit anyone can receive. The monthly max at FRA in 2022 is $3,345. Then, of course, if you wait to collect beyond your FRA, you earn delayed retirement credits, up to age 70, which will increase your monthly payment.

Continuing to work past your FRA could increase your benefits—depending

So will your monthly benefit go up if you continue to have earned income? That might be the case if your current salary is higher than one of your 35 highest-earning years to date. Here are a couple of examples.

First, let's say that you earned the maximum taxable income (or more) each of those 35 years. If so, you're already entitled to the maximum benefit. So while there may be a lot of other positive reasons for continuing to work, it won't get you a higher monthly Social Security payment.

But now let's say you earned less in the early part of your career and earnings in one or more of those years were lower than the maximum annual taxable income. If what you're earning now is higher than what you earned in one of your past 35 highest-earning years that have been indexed for wage inflation, your current higher income will replace one of the lower-earning years.

Since Social Security benefits are recalculated yearly, this added income could result in a higher monthly payment. But because there are 35 years of income included in the calculation to determine income over your remaining life expectancy from Social Security, you may not see much of a difference in your monthly payment. Fortunately, Social Security payments are adjusted for inflation, so every little increase can add up over time.

A couple of concerns—taxes and Medicare premiums

This all sounds like good news so far, but you should also be aware that continuing to work past 70 could cost you a bit more in taxes and Medicare premiums.

• Required Minimum Distributions (RMDs) increase your taxable income—If you have traditional retirement accounts, you must take an RMD at age 70½ or 72 depending on your birthday. This is considered ordinary income and could possibly push you into a higher tax bracket, especially as you continue to earn other taxable income. Not only would that possibly increase your income tax bill, you'd also most likely have to pay taxes on your Social Security benefits as I describe next.
• Increased income may make your Social Security benefits taxable—The percentage of your Social Security benefits subject to income tax will depend on your annual income. Currently, if you're a single filer and make $25,000 to $34,000, up to 50 percent of your benefits may be taxed; for income over $34,000, up to 85 percent of benefits may be taxed. Current limits for married filing jointly are $32,000 to $44,000 and over $44,000 respectively.
• Higher income might mean higher Medicare Part B and D premiums—Similarly, you may be charged more for Medicare premiums if you earn over a certain amount. For 2022 those thresholds are $91,000 for single filers and $182,000 for married filing jointly. However, if you still have healthcare coverage through an employer, you may be able to delay taking Part B and possibly Part D.

Check in with your accountant or financial advisor

I always think it's best to run the numbers by your accountant or other financial advisor. It's great to be able to continue to work for many reasons. In fact, the Bureau of Labor Statistics projects the biggest annual increase in the labor force through 2024 will be in the 65 to 75 age group. But make sure you know what continuing to work at this point in life means in terms of your overall financial situation.

Have a personal finance question? Email us at . Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.

The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager.

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