Will Working Longer Increase My Social Security Benefits?

Countless seniors depend on Social Security to provide a large chunk of their monthly income. If you're expecting to rely on those benefits once you retire, then it pays to take steps to increase them to the greatest extent possible. And working longer can, in some ways, help in that regard. This especially holds true if you didn't work for 35 full years during your career, or have higher earnings to show for now than you did during previous points in your career. Furthermore, if working longer allows you to hold off on benefits past your Social Security full retirement age, you'll accrue delayed retirement credits that wind up boosting those monthly payments.

How Social Security benefits are calculated

Your Social Security benefits are determined based on your highest 35 years of inflation-indexed earnings (meaning, your income is adjusted for inflation year after year). If you have fewer than 35 years of eligible earnings on record, then for each year you don't have an income on file, Social Security will factor $0 into your equation. Then, when an average of your earnings is taken, those $0 years will bring down the total amount you're eligible for in benefits.

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Working longer can boost your benefits

If you took time away from the workforce for whatever reason, and don't have 35 years of earnings on record, it pays to extend your career later on if doing so allows you to replace some of those $0 years with an actual income. For example, imagine you only worked 33 years, leaving you with two $0 years to be factored into your personal benefits calculation. If you replace both $0s with a $60,000 income, your benefits will rise as a result.

Even if you did work for 35 years (or more), if your income is higher later on in your career than in its early stages (which tends to be the case), then working longer can increase your Social Security benefits by replacing lower figures with higher ones. For example, imagine that the lowest amount of earnings on record among your top 35 years in the workforce is $35,000. If you replace that figure with, say, $85,000, your benefits stand to rise as a result.

But here's where extending your career might really work wonders for your Social Security payments. Though your benefits themselves are earnings-based, the age at which you first claim them can cause them to go up, go down, or stay the same. If you file for benefits at full retirement age, you'll get the full monthly amount you're entitled to based on your earnings. Here's what full retirement age looks like for today's workers:

DATA SOURCE: SOCIAL SECURITY ADMINISTRATION.

Now you're allowed to start taking benefits as early as age 62, but doing so will cause those payments to shrink. On the other hand, if you hold off on benefits past full retirement age, you'll accrue delayed retirement credits that automatically boost your monthly payments by 8% each year. This means that if your full retirement age is 67, and your full monthly benefit amount based on your earnings history is $1,500, working longer and holding off on benefits until age 69 will cause your monthly payments to increase to $1,740.

That said, delayed retirement credits stop accumulating once you turn 70, so at that point, there's no sense in holding off on Social Security. But if working longer allows you to wait until 70, you'll see more money out of Social Security each month.

Clearly, there are plenty of scenarios in which working longer can boost your Social Security benefits. But one situation in which extending your career may not help is if you're planning to collet spousal benefits that are considerably higher than the benefits you'll receive based on your own earnings record.

Under the spousal benefits rule, you're entitled to up to 50% of your spouse's retirement benefits if you don't have an earnings record of your own. If you do have an earnings record, you'll get either your own benefits or up to 50% of your spouse's benefits -- whichever is larger. Therefore, if you know off the bat that your spouse was a much higher earner, working longer may not do much for you as far as Social Security goes. But if you're single and are counting on those benefits to stay afloat financially in retirement, then it pays to do whatever it takes to increase them, even if it means pushing yourself to work longer than planned.