Once you start collecting Social Security benefits, you might assume that the amount you receive will remain fixed. However, that’s not always the case. Many people know that Social Security benefits increase each year due to the Cost-of-Living Adjustment (COLA), but there are other ways your benefit can change—especially if you’re still working in your 60s and beyond.
In this article, we’ll explore how working while receiving Social Security can impact your benefits and uncover a hidden rule that could lead to a larger benefit.
The Social Security Earnings Test: How It Affects Your Benefits
One of the most important rules that can affect your Social Security benefits is the Social Security earnings test. This rule applies to anyone who is collecting Social Security but has not yet reached their full retirement age. For most people, full retirement age is 67 if you were born in 1960 or later, but it’s slightly lower for those born before that.
Here’s how the earnings test works:
- If you earn more than a certain threshold while still working, the Social Security Administration (SSA) will start withholding part of your benefits.
- For example, in 2025, if you’re under full retirement age and you earn more than $23,400, the SSA will withhold $1 for every $2 you earn above that threshold.
- Once you reach full retirement age, the earnings threshold increases to $62,160, and the SSA will withhold $1 for every $3 above that threshold.
While the impact of the earnings test could mean a temporary reduction in benefits, it’s important to remember that the withheld amounts aren’t lost. The SSA will adjust your benefits when you reach full retirement age, potentially increasing your monthly payments.
The Hidden Rule That Could Increase Your Benefits
Now, let’s dive deeper into a little-known rule that could result in a bigger Social Security check later in life. The SSA uses your Average Indexed Monthly Earnings (AIME) to calculate your Social Security benefit. This figure is based on your highest 35 years of earnings, adjusted for inflation.
Here’s the catch: the SSA uses the inflation index tied to the year you turn 60 to adjust your past earnings. After that year, they do not continue adjusting those past earnings for inflation. Instead, they apply the annual COLA to adjust your monthly benefit once you start collecting.
However, if you continue to work after age 60, there’s a chance your earnings could rise due to inflation. This increase could replace one of your lower-earning years from your 35 highest years, which would increase your AIME and therefore your monthly benefit. Even if you’re a high earner, this change can be significant, and it might surprise you how much your Social Security benefits can increase if you keep working.
Why It’s Worth Working After 60
Despite the potential earnings test reduction, working while collecting Social Security can have significant long-term benefits. If you can afford to continue working, especially after age 60, you could replace some of your lower-earning years with higher income years, leading to a larger Social Security benefit down the road.
While many seniors are discouraged from working because they fear losing some of their Social Security benefits, the hidden rule that adjusts for inflation in your top 35 earning years can make working after 60 a smart decision for many people. This strategy could help you receive a bigger monthly benefit once you reach full retirement age.
Social Security benefits are not as static as they may seem. While the earnings test can temporarily reduce your benefits, continuing to work after age 60 could lead to a larger benefit due to the hidden rule that adjusts your earnings for inflation. The more you understand these detailed rules, the better equipped you’ll be to maximize your benefits.
By continuing to work, you not only potentially increase your Social Security benefit but also contribute to your overall retirement savings. Whether you’re a high earner or not, taking advantage of these opportunities can help ensure a more comfortable retirement.
FAQs
How can working after 60 increase my Social Security benefits?
If you continue working after age 60, you might replace some of your lower-earning years with higher-income years. This can increase your Average Indexed Monthly Earnings (AIME), which could lead to a higher Social Security benefit.
What is the Social Security earnings test?
The Social Security earnings test applies to those who are under full retirement age. If you earn more than a certain threshold, the SSA will withhold some of your Social Security benefits. The earnings test reduces benefits by $1 for every $2 earned above the threshold.
How does the COLA affect my Social Security benefits?
The Cost-of-Living Adjustment (COLA) increases your Social Security benefits each year to keep up with inflation. This increase applies to everyone eligible for Social Security, whether or not they have started receiving benefits.
What is the full retirement age for Social Security?
The full retirement age for Social Security is 67 for people born in 1960 or later. For those born in 1958 or 1959, it is slightly earlier.
Can I work while receiving Social Security benefits?
Yes, you can continue working while receiving Social Security benefits, but if you haven’t reached full retirement age, your benefits may be temporarily reduced based on how much you earn above the earnings threshold.
