The answer to the question of whether working longer always increases your monthly Social Security benefits is yes -- almost always. However, one exception involves Social Security spousal benefits. Here's why:
Image source: Getty Images.
The formula
The formula used by the Social Security Administration (SSA) to calculate your monthly benefits is based on your highest 35 years of indexed earnings (earnings that have been adjusted to account for wage inflation). If you've never earned much, it's possible that your Social Security benefits will be minimal, and claiming spousal benefits is your best financial bet.
Let's say you're married to a higher-earning spouse, but you have either worked part-time or have stayed home to raise the kids. Your plan is to claim Social Security spousal benefits based on your higher-earning spouse's work record. Even if you keep your lower-paying job for several more years, you may not earn enough to surpass the amount you could collect on their record.
Why working longer doesn't help everyone
This scenario explains why a person might claim spousal benefits rather than work longer to build up their own Social Security earnings record:
- Your spouse is the higher earner in the family, and you're considering claiming spousal benefits based on your spouse's work record.
- Your spouse is due to receive a primary insurance amount (PIA) of $3,000 per month. PIA is the amount a person gets if they begin receiving retirement benefits at full retirement age (67 for most soon-to-be retirees).
- You're eligible for 50% of his spouse's monthly benefit at full retirement age (FRA). In this case, that's $1,500.
- You do the math and figures out that even if you continue to work until age 70, the most you'll be eligible for in benefits based on your own work record is $1,100. There's no doubt in your mind that your best move is to claim spousal benefits when the time comes.
For most people
For most Americans, working longer can make a tremendous difference in the amount of Social Security benefits they receive. Consider this: For every year you work between FRA and age 70, your monthly Social Security benefits increase by roughly 8%. That means if you wait until age 70 to claim benefits, your checks will be 24% higher than they would have been at FRA.
For example, if your spouse delays benefits until age 70, their monthly benefit will jump from $3,000 to $3,720 ($3,000 x 1.24 = $3,720).
Social Security was never designed to cover 100% of monthly expenses, but it's an important part of most retirees' financial plans. If you're concerned that your check may be too small, consider whether working longer is right for you.
