When it comes to income sources for elderly Americans, Social Security remains at the top of the list, providing financial support to around 85% of seniors. However, there is a growing trend in another category on the income graph - 'Earnings from work.' Over the years, this bar has been steadily increasing, with about 35% of seniors now continuing to work well into their retirement years.
Understanding Social Security Earnings and Benefits
Many seniors wonder if their earnings from work will have any impact on their Social Security benefits. The answer is yes, but with a few conditions. All individuals working in jobs covered by Social Security must continue to pay payroll taxes, regardless of whether they are already receiving benefits.
Calculating Social Security Retirement Benefits
Your Social Security retirement benefit is calculated based on your average monthly income over a 35-year period, adjusted for inflation. The Social Security Administration looks at your entire earnings history, indexes each year for inflation, and selects the highest 35 years to determine your average monthly income. Typically, your Social Security benefit represents about 40% of this average monthly income.
Will Your Earnings Increase Your Social Security Benefits?
If you continue to work and pay Social Security taxes after you start receiving benefits, your benefit amount may increase if your current earnings are higher than the lowest year used in your benefit calculation. For example, if the lowest year was $46,060, and you earned $35,000 last year, your benefit would not increase. However, if you earned $70,000, your benefit would be recalculated based on this new higher amount.
Automatic Benefit Recalculation
The Social Security Administration has a software program that automatically tracks the earnings of working beneficiaries and reevaluates their benefits each year. If your latest earnings have raised your average monthly income and thus your benefit amount, you can expect to see an increase by October of the following year. This adjustment is typically retroactive to January of the year you receive the notice.
In conclusion, continuing to work while receiving Social Security benefits can have an impact on your monthly payments. By understanding how earnings are factored into your benefit calculation, you can make informed decisions about your financial future and retirement planning.