Benefit amount

[mr50245553]

I know that when you retire, they use your best 35 years to determine your benefit amount. If you retire lets say at 64 years old, but you still work, does the amount you make after you start collecting get that benefit amount recalculated if what you earn knocks out some of the lower earning years?

[Tonster521]

@mr50245553 It may drop a lower earning year (i.e., 1988) and replace that year with current earnings (i.e. 2023) if the current non-indexed earnings are greater than indexed earnings from a prior year. Remember, all earnings prior to age 60 are indexed. So, you need to calculate the values of your earnings (prior to age 60) that are indexed and compare that to current non-indexed earnings.I am providing a link to SS Indexing Factors which may help you see if there will be any shuffling of earnings over the 35 year period https://www.ssa.gov/cgi-bin/awiFactors.cgi . I used a birth year of 1959 which indicates a person age 64 in 2023. The SS index factors are determined based on attainment of age 62 which in this example is 2021. If the chart loaded correctly, you will notice that the last two years (2019 and 2020) do not have an index factor greater than 1.00 which means the earnings "are what they are" (no indexing after age 60). Assuming one earns less 35 years ago (1988), one's actual earnings (aka nominal earnings) need to be increased by the index factor 2.7981731. Call it 2.8 for folks without a calculator. If one earned $20,000 in 1988, the SS benefit formula will use approximately $56,000 for 1988 to develop one's Average Indexed Monthly Earnings (AIME). If current earnings are greater than $56 K, one's current earnings will replace that indexed amount ($56 K) from 1988. Unless the difference is significant, it may not affect your SS Benefit by much. In fact, you may not even recoup the amount of extra FICA taxes that you and your employer will pay for years in excess of 35 years. For example, if one earns $60 K in 2023, only $4000 is added to the 35 year accumulated earnings ( add $60 K drop $56 K). In this case, one's AIME will increase by about $9.52 ($4,000 divided by 420 months). Based on these earnings, the SS Benefit formula will pay 32% of $9.52 or about $3.04 more per month. Based on the earnings example that I used, one will pay about $4590 in FICA taxes ($60 K times 7.65% or .0765). One's earnings need to increase significantly to have a worthwhile positive impact on the amount of SS Benefit. Hope this helps with the math.

[GailL1]

YES - but if you stop work and file for retirement immediately, it may take until the next year to pick up that last higher amount - so expect to see it in the next year's benefit.