Retired and still working? What happens to your Social Security benefits? - AMAC Foundation

The U.S. Department of Labor reported recently that labor force participation by those in the 65 to 74 age group stood at 17% in 1994 and was projected to increase 73% by 2024. While that’s a significant indicator of what’s become known as a “graying workforce,” how about this: the over 74 age cohort is projected to have almost doubled in the same period, reaching more than 10% of the projected workforce by next year.

While the rapidly aging workforce presents a variety of challenges for employers, foremost among them is the increased costs of healthcare typically accompanying older individuals. Productivity is another challenge, especially in physically demanding positions, while training and the ability to adapt to constantly evolving technologies is another.

All of the challenges will likely be met by a resilient economy and a workforce flexible enough to accommodate the changing demographics, but what about the retiree who elects to re-join the workforce after having elected to draw Social Security retirement benefits? Our Social Security Advisory Service here at the AMAC Foundation deals with this question frequently, and it usually comes in the form of something like, “I went back to work and am still paying FICA taxes, so will be monthly retirement benefit be going up?” Our response invariably is a solid, “It depends.”

It is possible to increase your monthly payment by working after filing for Social Security benefits, but in truth, unless you go back to work—or continue to work—at a salary equal to or greater than your last full-time salary, it’s unlikely. Social Security, in calculating your benefits, uses your highest 35 years of inflation-adjusted earnings to determine your monthly benefit. The adjustment process applies the National Average Wage Index—NAWI–as the basic factor to bring your prior years’ earnings up to present values. If, after starting your retirement benefit, you elect to remain in the workforce and record taxable earnings, and if these taxable earnings exceed any one of the highest 35 inflation-adjusted earnings in your record, your benefit could be increased.

Any adjustments are done through an automatic process within Social Security called the Automated Earnings Reappraisal Operation (AERO). Using this process, Social Security compares your most recent earnings information received from the IRS to the highest 35 inflation-adjusted earnings in your record and, if the most recent figure is higher, your benefit is recalculated. This reappraisal usually takes place by October, and any adjustments are retroactive to January 1.

It’s important to understand, though, that if you’re working, for example, on a part-time basis or have stepped down to a lower-paying job, the likelihood of a benefit increase is small. Here’s an example: for someone who reached age 62 in 2021 and their lowest earnings were $7000 in 1970, Social Security would have adjusted that earnings figure up to more than $46,000. So, that person would need to now earn more than that for the calculation process to increase their benefit.

This article is presented as a service of the AMAC Foundation. If you need assistance on Social Security matters, contact our free Social Security Advisory Service at 888-750-2622 or via email at [email protected].

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