Your Social Security retirement benefit is calculated on your work record, in your case, the 35 best paid years of your working life. If you keep working after beginning to take benefits, your extra earnings might raise your monthly benefit. Below is a complete description of how it is accomplished and what determines whether an increase takes place.
How Social Security benefits are calculated
Your Social Security retirement benefit is largely calculated based on your average indexed monthly earnings (AIME) over the 35 years for which you’ve earned the most (adjusted for inflation). If you worked for less than 35 years, zero-earning years are filled in with zeros. That is, extra years of work with higher income can substitute those zero or lower-income years and so boost your AIME and your benefit accordingly.
Can extra income boost my benefit?
Yes, extra income can boost your Social Security benefit if:
- Replacing lower-earning years: Your new income is greater than one or more of the 35 years currently used to compute your benefit. Those lower-earning years will be replaced. This will result in a boost to your monthly benefit.
- Automatic recalculation: The SSA will automatically recheck your earnings record every year. When your most recent earnings are among your highest 35 years, the SSA will proportionately adjust your benefit. The adjustment is made retroactive to next year’s January.
Full Retirement Age (FRA) considerations
If you keep working after FRA, there is no limit to the amount you can earn, and those extra earnings can continue to increase your benefit if they replace years that would otherwise be lower-earning in your calculation.
The Retirement Earnings Test
If you start drawing Social Security benefits before FRA and keep working, your benefits will be temporarily reduced because of the Retirement Earnings Test (RET) as mentioned in this article, What is Full Retirement Age?:
- Prior to FRA: In 2025, $1 is deducted from your benefits for each $2 of earnings above $23,400 annually.
- Year you turn FRA: The threshold jumps. In 2025, $1 is deducted for each $3 of earnings above $62,160 until you turn FRA in the month.
- After FRA: After you turn full retirement age, there are no earnings limits or amounts deducted from your benefits.
Particularly, suspended benefits because of the RET are not lost forever. Once you reach FRA age, your benefit amount is recalculated by the SSA to factor in suspensions.
Cost-of-Living Adjustments (COLA)
Apart from any boosts that come with extra earnings, Social Security benefits are raised each year to account for price increases by a Cost-of-Living Adjustment (COLA). For instance, in 2025, there will be a 2.5% COLA increasing typical retirement benefits by about $49 per month. COLA increases are distinct from those made based on extra earnings.
Reasons an increase may be short-circuited
As appealing as extra earnings would ideally increase your benefit amount, the following may short-circuit such an effect:
- Earnings ceiling for taxation: Only income up to the yearly taxable maximum ($176,100 in 2025) is used for Social Security. Beyond this, the income doesn’t go toward higher benefits.
- Already at maximum benefits: If you’ve had earnings at or above the taxable maximum every year for 35 or more years, your extra income won’t increase your benefit because you’ve already reached your AIME maximum.
Key takeaways
It also keeps paying as it is taking Social Security benefits, which will add to your payment every month if that income from work replaces several years of lower earnings in the computation.
- The SSA routinely refigures benefits once a year using the latest earnings records.
- There are no earnings limits or penalties for people who are already at full retirement age and getting benefit payments.
- Benefits also go up with COLA increases annually.
If you are considering returning to work once you start taking Social Security benefits and would like a clearer picture of how it will affect your payments, ringing the SSA by phone or visiting with a financial planner can provide personalized guidance geared to your own situation.
Read more: If I get married, will it affect my benefits?
Read more: What is the current maximum amount of taxable earnings for Social Security in 2025?
