Social Security’s earliest claiming age — 62 — remains one of its most popular, but not all those applying at this age are retired. Many choose to stay in the workforce while receiving checks, either out of financial necessity or because they enjoy working.
But this complicates your Social Security benefit calculation. Your checks are based on your income throughout your working years, which means your salary while on Social Security could affect your monthly checks. Here’s what you need to know.
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Unraveling the Social Security Benefit Calculation
The Social Security Administration bases your retirement benefit on your average monthly income over your 35 highest-earning years, adjusted for inflation. This is simple to calculate when you retire before applying for Social Security. But it’s more complex when you’re working and claiming at the same time.
In this scenario, the Social Security Administration analyzes your earnings record annually for any reported earned income from a job. If your latest year of earnings is not among your top 35 earning years, it won’t alter your monthly checks.
However, if the last year falls within your 35 most profitable years, the Administration recalculates the benefit formula, incorporating this new year of earnings while discarding one of your lower-earning years. Subsequently, any resulting increase owed to you will be paid retroactively to January of the year following the earnings. For instance, a high-earning year in 2024 will prompt the government to consider this and pay any resulting increase starting in January 2025.
Working and claiming Social Security could significantly impact your benefit over time, but it may reduce your checks initially if you haven’t reached your full retirement age (FRA), which varies between 66 and 67, depending on your year of birth.
While working and claiming Social Security, the government withholds $1 from your checks for every $2 earned over $22,320 in 2024 if you remain under your FRA throughout the year. Upon reaching your FRA in 2024, the reduction changes to $1 for every $3 earned over $59,520, provided you earn this amount before your birthday. This mechanism is known as the earnings test.
Although this reduction is temporary, upon reaching your FRA, the government recalculates your benefit to include the withheld amount from the earnings test. Furthermore, it ceases to withhold money for future checks, regardless of your earnings.
The earnings test could pose challenges if you were relying on your checks to meet present expenses. Consider estimating your job earnings for the year and how they might affect your Social Security checks. Adjust your budget accordingly, perhaps by reducing expenses or supplementing them with income from work or personal savings.
If you have queries regarding the impact of working and claiming Social Security on your checks, feel free to contact the Social Security Administration online, by phone, or by visiting your local Social Security office.
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