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Why Earning More Boosts Your Social Security Income Only So Much

By Christy Bieber – Nov 2, 2021 at 9:16AM

Key Points

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A higher income can raise your benefits, but there are limits.

Social Security payments are based on your average wages, so it stands to reason that increasing your income will give these benefits a boost. And indeed, working to earn larger paychecks can be one of the best ways to raise your retirement benefit.

But there's a limit to how much impact a higher salary can have on the size of your Social Security benefit, and there are two key reasons. 

Adult looking at papers and laptop.

Image source: Getty Images.

1. Not all of your earnings necessarily count 

Since benefits are based on average wages, an increase in earnings naturally makes those benefits go up. But that's only the case if you get credit for the full amount you earn based on the Social Security formula. 

There's a wage base limit that applies each year. Any income below the wage base limit counts in the calculation of your career-average wage (and is subject to Social Security tax). Any income above the wage base limit isn't taxed -- but you don't get credit for the extra money when your benefit amount is calculated. 

In 2022, the wage base limit will be $147,000. If you're already earning more than this, or if you increase your earnings above this threshold, your extra income won't do anything to help you get bigger Social Security payments.

This limit is adjusted each year. And in any year when your income exceeds it, only part of your salary will count in determining your benefits. 

2. You need to earn more for many years 

There's another reason increasing your earnings can only help raise your retirement benefit so much.

It's because the average wage that your payout is based on are calculated based on 35 years of work history. That's a lot of working years being factored in. As a result, you'd need to earn a high salary over a long period of time for it to make much of an impact. 

If you have one or two really good years, the extra you earn during that time will definitely increase your benefit a bit. But it won't have a huge impact unless you keep earning a higher salary for a sustained period of time. 

The good news is, the Social Security Administration does consider only the 35 years when your earnings were the highest (on an inflation-adjusted basis). So, even if you start out not earning much, if you end up having many years of higher wages, they'll replace many lower-earning years in the calculation of your average wage.  

As a result, working hard to earn a high salary ASAP is important if you want to increase your Social Security benefit as much as possible. And if you don't manage to boost your income until late in life, you may want to put off retirement as long as possible and put in as many years as you can at your higher salary. 

Ultimately, there's no downside to increasing your income, especially since doing so can give you more money to save as well. But don't anticipate that a higher salary is necessarily going to result in a huge Social Security payout in every situation. 

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