Can You Claim Social Security and Still Work – Part 2

In Part 1 of “Can You Claim Social Security and Still Work”, I explained how the Earnings Test works. With this Part 2, I want to share with you another aspect of what happens if you claim your Social Security and continue to work. Most people think that once they claim their Social Security benefit, they will have to live with that benefit amount for the rest of their life. That does not have to be the case, especially if they continue to work after claiming their Social Security. You can grow your benefit after claiming it. 

And if you claim your benefits at your Full Retirement Age or older and continue to work (which I assumed for this example), Social Security’s earnings test does not come into play. In other words, you can collect your Social Security, continue to work, make as much money as possible, and you will never have to give back any of your received Social Security benefits.

Let’s look at an example.

Assume you claimed your benefit of $2,500 per month at your Full Retirement Age of 67. You may think that because you have claimed your benefit that you are going to receive that $2,500 per month for the rest of your life, but if you continue to work that may not be the case.

Replace a low income year with a higher one

In order to determine your monthly benefit amount, Social Security uses a formula that includes your 35 highest wage-earning years. If there’s a year you had higher earnings than the others, Social Security will remove that lower year. They add the higher earning year, and that should slightly increase your monthly benefit amount. They will do this recalculation even if you have already claimed your benefit, but continue to work.

Most people, if they are still working in their 60s, probably are making a lot more money that they did in their 30s. The higher earnings in their 60s could eliminate one of the lower earning years. As a result, their Social Security benefit would increase.

So if your earnings at 67 exceed your earnings from a previous year, Social Security would delete the lower year. They add the higher earning year, recalculate your benefit, and pay you the higher amount going forward. They would do this even though you have already claimed your benefit. It will not be a substantial increase, because you are only replacing one out of 35 wage-earning years. But you should see a slight increase.

In fact, if you were to continue to work into your 70s, 80s or 90s, Social Security recalculates your benefit every year. If you made enough money to knock out one of your previous wage-earning years, and increase your benefit going forward.

I Do Not Have 35 Years of Work History

The impact on the size of your benefit could be greater if you did not have 35 wage-earning years. For a number of various reasons, some people stop working for an extended period of time during their careers.

When they claim their benefits, they may not have a work history that includes 35 wage-earning years. For instance, if when you claimed your benefits you only had 30 years of work history, Social Security will use those 30 years of earnings, but they will also include 5 years of $0 earnings. Those 5 years of $0 earnings will decrease the size of your monthly benefit.

In this case, every year you continue to work after claiming, you will replace one of those $0 earning years. That will increase your benefit by a greater amount than if you already had 35 years of earnings. 

I don’t know if you want to work into your 70s, 80s or 90s. But if you do, you could grow your benefit after claiming it.