Social Security benefits are calculated using a formula called the average indexed monthly earnings (AIME). While it can sound complicated, AIME uses your 35 highest-earning years to calculate benefits. The problem is that for many people, AIME can be insufficient.
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After all, the average monthly Social Security benefit is $1,544.70 as of July 2022. That works out to just over $18,500 annually — hardly enough for most people to cover their basic necessities. That could leave many people with a budget shortfall.
Given the potential shortfall, a high Social Security check would be a welcome surprise for most people. Although the Social Security Administration (SSA) uses the AIME formula to calculate benefits, there are several reasons your check can be higher than expected. Let’s run through a few of the most common reasons.
Cost of Living Adjustments
Cost of living adjustments (COLA) is one of the most common reasons for higher Social Security benefits. The SSA uses the Consumer Price Index (CPI) as part of its benefits calculation. When the cost of living increases according to the CPI, the law states that benefits must increase.
The COLA was 5.9% in 2022, but that increase was larger than in past years, likely due at least in part to COVID-19. For example, it was 1.3% in 2021 and 1.6% in 2020. Although the COLA is higher in some years than in others, you can usually expect at least a small increase in your benefits every year.
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Some people work well into their 70s, often not by choice but out of necessity. While a late retirement may not sound like an appealing option, it can mean higher Social Security checks. For those born after 1960, the full retirement age is 67. You can start benefits as early as age 62, but they will be reduced by 30%.
However, the reverse is also true: delaying retirement can increase your Social Security check. In fact, your monthly retirement benefit will increase by 8% for each year you delay payments. If you delay retirement until age 70, you will receive the maximum increase of 24% when compared to the full retirement age.
Working After Starting Benefits
If you work after starting benefits, your benefit can increase. One reason for this is that the SSA uses your highest 35 years of earnings to calculate your monthly benefit. If you have worked for less than 35 years, you might have entire years in which you have no earnings on record. Thus, working after starting benefits would mean you can increase the number of years in which you earned, which might give your Social Security check a small boost.
One caveat here is that working after starting benefits could decrease your benefits, at least for a while. This is because the SSA will reduce your monthly benefit if you work while receiving benefits and have not yet reached your full retirement age. Once you reach that age, though, your benefits won’t be reduced, no matter how much you work.
Similar to the previous point, you could receive more benefits than expected if you had some high-earning years. As mentioned earlier, the SSA uses your highest 35 years of earnings to calculate your monthly benefit. You might work less as you age. Or perhaps you leave a job that is physically strenuous or dangerous but pays well.
Those years of working hard and making a lot of money might be long behind you, but they still matter. If you made more money back then than you do now, you might find that your Social Security checks are more than expected.
You’ve Received Reduced Benefits
This point is a little trickier to understand, but there are situations where you might decide to take a reduced benefit. For example, you might decide to work part-time at age 62 and receive a reduced Social Security benefit to supplement your income. If you earn more than the allowable earnings amount and have some benefits withheld, the SSA will recalculate your benefit when you reach your full retirement age.
In this scenario, you will receive a credit for any months in which you didn’t receive benefits. That credit will then increase your future payments.
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