Remaining in the workplace after claiming benefits?
Many folks remain in the workforce after claiming their Social Security retirement benefits, some on a part-time basis, some full-time. Often, one of their beliefs is that continuing to be subject to the payroll tax—the FICA tax—will increase their monthly benefit as they go forward. When asked for a confirmation on this, our typical answer is along the lines of, “Maybe it will, maybe it won’t.” It all depends on the earnings after claiming benefits.
In addressing this question, the first thing to consider is the indexing process used to determine benefits. For example, a worker’s $21,986 earnings in 1992 are indexed to $61,121 for the average monthly indexed earnings calculation when their benefit is calculated. If this indexed amount—the $61,121—was the lowest of all the annual earnings in their indexed work record, then any earnings after claiming benefits would need to exceed this amount to generate an increased monthly benefit.
So, if a worker remains in a job paying high wages, and if their current and future earnings are likely to exceed the national average wage index, it is likely that their benefit will continue to grow. However, if a worker claims benefits and then decreases their earnings, for instance, by entering a lower-paying job or transitioning to part-time employment, it is unlikely that their earnings after claiming benefits will be sufficient to replace the lowest value in the 35 years of indexed earnings maintained by the Social Security Administration.
Another possible scenario is that continuing to work after claiming benefits would allow a worker with zero earning years in their work record to replace one of those zero years with actual earnings, and this would increase the benefit going forward.
In any event, it’s nothing that the individual beneficiary would need to worry about tracking. Every year, after SSA processes the earnings data forwarded by the IRS, they execute a process called Automated Earnings Reappraisal Operation, or AERO, that compares the new earnings amount to the workers earnings record and, if the newly reported earnings are higher than any of the 35 annual indexed earnings records, the beneficiary will be notified, and the adjustment will be made retroactive to January 1. The AERO process usually takes place early in the fourth quarter of the year.
We know this can be a somewhat complicated issue, but rest assured that the AMAC Foundation’s Social Security Advisory Committee stands ready to help you navigate the rules. Learn more about this service and how to access it here…