After working for several decades, the idea of stepping back and claiming Social Security sounds pretty good. As long as you're at least 62 and have worked long enough to qualify for retirement benefits, there's nothing to stop you from applying.
However, it's possible that signing up as soon as you can could shortchange you in ways you might not expect. Here are three ways working one extra year could lead to larger Social Security checks for the rest of your life.
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1. You could eliminate a zero-income year from your benefit calculation
The Social Security benefit formula considers your average monthly income from your 35 highest-earning years, adjusted for inflation. This is known as your average indexed monthly earnings (AIME). You can claim checks with a work history as short as 10 years. But if you do this, you'll have zero-income years factored into your benefit calculation.
Even one of these can permanently reduce your checks. If you earned $60,000, adjusted for inflation, for 35 straight years, you would be eligible for a monthly benefit of about $2,346 at your full retirement age (FRA). If you only had a 34-year work history, that benefit would drop to $2,300 per month -- a $46 difference.
Working one more year would help you eliminate this zero-income year from your benefit calculation, resulting in permanently larger checks.
2. Working longer than 35 years could still boost your AIME
Many people find that they earn more money later in their careers than they did when they were starting out. This makes working longer advantageous, even if you already have 35 years or more in the workforce.
Your more recent, higher-earning years will slowly push your earlier, lower-earning years out of your benefit calculation. This will raise your AIME, which will in turn lead to larger Social Security checks.
3. Working longer could enable you to delay your application
Every month you delay Social Security can increase your benefit. How quickly your checks grow depends on your current age and your FRA. For most workers today, this is 67. Your checks don't stop growing once you reach your FRA either. They continue to increase until you qualify for your maximum benefit at 70.
Working an extra year could give you the financial stability you need to delay your Social Security application. This, in turn, will lead to permanently larger checks for the rest of your life.
It's up to you to decide whether to work another year before signing up. But if you think you can pull it off, there's a good chance it leads to a larger lifetime benefit.
