Does Working Longer Increase Social Security Benefits?

Will continuing to work help increase your Social Security benefits? On your Social Security statement it shows how much you would receive if you file for benefits at various ages assuming that you continue to work. However, what if you stop working now, and don't plan to take your benefits for a few more years? How much different might your benefits be? In part, it will depend on your earnings history, and how much you will make going forward. Social Security looks at your highest 35 years of earnings in the calculation. 

If you have been a high income earner over the course of your career, and have worked more than 35 years you may not notice that much of an increase in your Social Security benefits if you continue to work. On the other hand, if you have less than 35 years of earnings history continuing to work could replace some of those years when you didn't earn anything.

In this video we will look at some actual examples so that you can see the difference between continue to work and not continuing to work.

Here is the link to Social Security's Online Benefits Calculator: https://www.ssa.gov/benefits/retirement/planner/AnypiaApplet.html

Full Transcript:

Should you continue to work to get a higher Social Security benefit? And if you do continue to work, how much of an impact might that have on the benefits that you receive? Would it be much of a difference? So we're going to talk all about it here in this video and I'll show you a couple of examples on how this works.

So this is your Social Security statement. Obviously this is the sample that's on Social Security's website. You may have seen this right here where it says, these personalized estimates are based on your earnings to date and assume you continue to earn $54,489. In this case, this is for our sample Wanda worker, until you start your benefits. Okay? So the example I'm going to walk through here today is a 65-year-old that is not planning to take their benefits until 70 thinking that they might continue to want to work because they're seeing what their benefit would be at 70 and are concerned that if they didn't continue to work for that next five years, that perhaps their benefits could be noticeably less.

Let's dive in here. I've got a couple of examples. Our first example, again, this is a 65-year-old, I'm recording this in November of 2023. So they're born here in November of 1958. They're going to take benefits at 70 and I've made them a high income earner all throughout their working career. Remember Social Security, the amount that you get, it's based on two things. It's based on when you take it anytime, you could take it anytime between 62 and 70. And it's also based upon your highest 35 years of earnings. So in this case, I'm showing high earnings all throughout this person's working history. So they have 35 years of high earnings. Now remember, you pay payroll taxes or Social Security taxes on your earned income from working up to a limit. So if you make more than that limit, like this person is making a very high income here, I put if you make over that amount, which I'll show you right here, if you make over that amount, you still won't pay Social Security taxes above that limit.

So for instance, in 2024, even if you make $200,000, let's say for the year, $168,600 is the cap on which you pay Social Security taxes. Alright? So you could see over time that's increased with inflation cost of living adjustments essentially. So let's go back here and look at our first sample. So again, this person totally has maxed out their earnings over time, and I'm going to assume here in 2023, they're also having a big earnings year. And first thing I want to take a look at here is, okay, let's say that they do continue to work. Alright? So this is in 2024 and later. So in this case, we're going to assume that they continue to work all the way up until age 70. Press calculate benefit here, and I'll put this link in the description down below so that you can click on this and play with this for yourself.

Also, you can pull up your earnings history on Social Security's website. If you haven't done that already, I encourage you to do so. It's also good to check for discrepancies, but here you go. So for this person, based on this, they're at $4,767, assuming they continue to work, all right? Now let's say that they don't continue to work. Let's say that they're done. So let's get rid of this right here, make that a zero. So they're not going to work for another five years, they're 65, they're done now, instead, they're going to receive $4,690. So the difference here is $87. So the question this person would want to ask themselves is, is it worth continuing to work another five years, assuming they also had max earnings to get that additional $87 per month. Okay? Now let me show you a different example, which is going to be very, very different than that one.

Also, again, I'm going to assume a 65-year-old, same thing, they're going to take their benefits at 70. Now with this person, they didn't work very much. Maybe this was a homemaker, somebody stay at home, mom, maybe they stayed home raising the kids or something like that for a number of years. And then the kids got older out of the house and maybe they went back to work. And in this case, I just made up some earnings here in 2010. Now notice these aren't the max earnings, right? I just made up a number of $40,000 and increased that by $2,000 each year. Just as an example here. So for this person, and let's say this next year, let's say they continued to work all the way up until age 70.

So their benefit would be $2,019. Now, let's compare that. Let's say that they did not continue to work anymore for those five years. Now this benefit would be $1,713. So what does that mean? Let's get out the old trusty calculator over here. $2,019 minus $1,713. So we're talking $306, okay? So that's a noticeable difference right there. And the reason that we're seeing that primarily is because this person has many years where they didn't work many years, certainly where they didn't max out the earnings as well. But there's a very big difference here for this person by continuing to work another five years. Now, again, you may decide if this is you, that you don't need to continue to work for another five years in order to get an extra $306 of benefit. Everyone's situation certainly is going to be different. Now, let's come back to this other individual here who I'm assuming had those max earnings all throughout their career.

You may have heard that if you have some zero years in your earnings history, it can make sense to continue to work because again, the amount that you're going to get from Social Security is based upon your highest 35 years of earnings in part. And also of course, when you take it. So let's just say for fun that this person only worked for 30 years, so I'm going to get rid of five years of earnings here. And then they also had max earnings after that, and then they continued to work and have max earnings again until retirement. So in this case, again, if they were to go ahead and do that, they would get $4,693. Now, if they did not continue to work again, they haven't hit their max 35. So notice what we're going to see here. Now we're at $4,355. So what's our difference here?

$4,693 minus $4,355. That's $338 difference by this person continuing to work. So it's important when you see your statement right here, don't be necessarily too concerned because, this is what we just looked at right here is five years of earnings for a lot of people. What we're looking at is, okay, you're 62 right now or 63 right now, and thinking about taking your benefits at 66 or 67. So there may only be two, three or four years until you're thinking about taking your Social Security benefits. So the amount too that their benefit might increase by working only for those few years might be even less than some of our examples that we're looking at right now. So here's the other thing that I think is really important. I mean, to me, this is really the bottom line. So you have to decide, is it worth it to work those additional years?

Are you in a job that you love and you don't mind and you'll continue to do it? Or are you in a job that's just breaking you and you're burn out and you're ready, you're ready to quit, you're ready to sail off into retirement if at all possible? And if that's the case. After assessing your overall income plan, if have the money that you're going to need for the rest of your life, is it really worth working just a little bit longer for perhaps just a little bit more money? Again, everybody's situation's going to be different. I hope this gives you something to think about. If you like this video, if you found it helpful, make sure that you like the video, make sure that you subscribe and I'll see you in the next one. Take care.