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 between 67. Yet, you can file for your Social Security retirement benefits as early as age 62 or as late as age 70.
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?
Working After Full Retirement Age Might Increase 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.
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.
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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. The amount of the reduction is $1 for each $2 you earn above $21,240 in 2023.
If you reach full retirement age in 2023, the reduction drops to $1 for every $3 you earn above $56,520, 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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