Social Security pays retirement benefits to seniors, but you don’t need to be retired to claim them. You can claim benefits as early as 62 and are allowed to work while collecting them — although, depending on your situation, that could mean you’ll have to temporarily forfeit some of your checks until you reach your full retirement age.
If you’re already 67, that means you’ve hit your full retirement age (FRA) and no matter how much you earn, your monthly Social Security check won’t be reduced by your paychecks. In fact, the work you do now could potentially increase the amount of money you’re entitled to.
Here’s how a high-earning year later in life could make a difference in your monthly payments.
Social Security benefits are calculated based on your highest earning years
Every retiree who qualifies for Social Security will start with a standard benefit, or the amount they’ll get if they claim their benefits at full retirement age. This amount could be increased or decreased depending on the age when they first start getting payments. However, the important thing to know is that the standard benefit is always calculated using the same formula.
Specifically, your standard Social Security benefit equals a percentage of your average monthly income calculated using your 35 highest earning years, after adjusting for wage growth.
That means if you get a big bonus in 2024, that might replace another lower-earning year that’s currently included in your benefits calculation. Here’s how that might look: Say you earned $150,000 in 2024 and the inflation-adjusted equivalent of $40,000 in 1994. If 1994 was previously one of your 35-highest earning years (assuming you’ve worked for at least 35 years) your more recent six-figure year would take the place of your 1994 salary.
Your benefits would then be recalculated, likely resulting in a larger average wage and thus a bigger Social Security check.
Beware the wage base limit
While your big work bonus may increase your benefits, you should be aware that there’s a cap on how much income you get credit for in the SSA’s books. That’s because of the wage base limit.
Social Security sets a maximum limit on the amount of income you’re taxed on and that counts in your earnings record. This number is the maximum salary that’ll be included when youre average benefit is calculated. For 2024, the wage base limit is $168,600.
If your work bonus and your other earnings don’t exceed $168,600, every dollar you earn this year will go towards helping you increase your monthly check — but if you earn more, then some portion of that bonus, unfortunately, won’t count in your benefits formula.
You can check your earnings record online at mySocialSecurity.gov to find out what your past earnings were. This can help you see how your current income compares to your past. If you do end up with a benefits increase thanks to a big year in 2024, your extra benefits will be paid out in December 2025 and that increase will be retroactive to January 2025. So you can expect more money, but you may not get it for a while.
